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Introduction To Accounting

Accounting serves as a language of business by communicating financial results to stakeholders. It records, classifies, and summarizes financial information to allow for intelligent decision making. Accounting aims to determine profit or loss over a period, report on the financial condition of a business, and maintain control over its assets. It involves recording transactions, categorizing data, summarizing information into financial statements, and interpreting the results.

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27 views3 pages

Introduction To Accounting

Accounting serves as a language of business by communicating financial results to stakeholders. It records, classifies, and summarizes financial information to allow for intelligent decision making. Accounting aims to determine profit or loss over a period, report on the financial condition of a business, and maintain control over its assets. It involves recording transactions, categorizing data, summarizing information into financial statements, and interpreting the results.

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We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Accounting: Importance, Objectives and Principles, Accounting Concepts and

conventions, and The Generally Accepted Accounting Principles (GAAP), their implications on
accounting system; Revised Accounting Standards Double entry system–recording business
transactions–Classification of accounts–Accounting cycle.
INTRODUCTION:
Accounting has rightly been termed as the language of the business. The basic
function of a language is to serve as a means of communication Accounting also serves this
function. It communicates the results of business operations to various parties who have some
stake in the business viz., the proprietor, creditors, investors, Government and other agencies.
Though accounting is generally associated with business but it is not only business which makes
use of accounting. Persons like housewives, Government and other individuals also make use of a
accounting. For example, a housewife has to keep a record of the money received and spent by
her during a particular period. She can record her receipts of money on one page of her
"household diary" while payments for different items such as milk, food, clothing, house,
education etc. on some other page or pages of her diary in a chronological order. Such a record
will help her in knowing about :
(i) The sources from which she received cash and the purposes for which it
wasutilised.
(ii) Whether her receipts are more than her payments orvice-versa?
(iii) The balance of cash in hand or deficit, if any at the end of aperiod.
In case the housewife records her transactions regularly, she can collect valuable
information about the nature of her receipts and payments. For example, she can find out the total
amount spent by her during a period (say a year) on different items say milk, food, education,
entertainment, etc. Similarly she can find the sources of her receipts such as salary of her
husband, rent from property, cash gifts from her relatives, etc. Thus, at the end of a period (say a
year) she can see for herself about her financial position i.e., what she owns and what she owes.
This will help her in planning her future income and expenses (or making out a budget) to a great
extent.
The need for accounting is all the more great for a person who is running a business.
He must know :
(i) What he owns?
(ii) What he owes?
(iii) Whether he has earn a profit or suffered a loss on account of running abusiness?
(iv) What is his financial position i.e. whether he will be in a position to meet all
hiscommitmentsinthenearfutureorheisintheprocessofbecomingabankrupt.
MEANING OFACCOUNTING
The main purpose of accounting is to ascertain profit or loss during a specified period, to
show financial condition of the business on a particular date and to have control over the firm's
property. Such accounting records are required to be maintained to measure the income of the
business and communicate the information so that it may be used by managers, owners and other
interested parties. Accounting is a discipline which records, classifies, summarises and interprets
financial information about the activities of a concern so that intelligent decisions can be made
about the concern. The American Institute of Certified Public Accountants has defined the
Financial Accounting as "the art of recording, classifying and summarising in as significant
manner and in terms of money transactions and events which in part, at least of a financial
character, and interpreting the results thereof". American Accounting Association defines
accounting as "the process of identifying, measuring, and communicating economic information
to permit informed judgements and decisions by users of the information.
From the above the following attributes of accounting emerge :

(i) Recording : It is concerned with the recording of financial transactions in an


orderly manner, soon after their occurrence In the proper books ofaccounts.
(ii) Classifying : It Is concerned with the systematic analysis of the recorded
datasoastoaccumulatethetransactionsofsimilartypeatoneplace.Thisfunction is performed by
maintaining the ledger in which different accounts are opened to which related
transactions areposted.

(iii) Summarising : It is concerned with the preparation and presentation of the


classified data in a manner useful to the users. This function involvesthe preparation of
financial statements such as Income Statement, Balance Sheet, Statement of Changes in Financial
Position, Statement of Cash Flow, Statement of Value Added.

(iv) Interpreting : Nowadays, the aforesaid three functions are performed by


electronic data processing devices and the accountant has to concentrate mainly on the
interpretation aspects of accounting. The accountants should interpret the statements in a
manner useful to action. The accountant should explain not only what has happened but
also (a) why it happened, and (b) what is likely to happen under specifiedconditions.

DISTINCTION BETWEEN BOOK-KEEPING AND ACCOUNTING


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