Accounting could be defined as the art of recording, summarizing, reporting, and examining financial transactions. Accountancy typically generates financial statements which demonstrate in money terms the economic resources within the control of management; selecting information which is related and representing it faithfully.
Accounting is usually regarded as the process of monitoring a business’ finances by recording its accounts payable, accounts receivable and other monetary transactions.
In other words, Accounting is an information system which measures business activities, generates reports and communicates the reports to management. A key product of this information system is a collection of financial statements-the documents which report financial information about an entity to management. These reports reveal how well an organization is performing when it comes to profits and losses and where it stands in financial terms.
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The primary focus of accounting is the double-entry book-keeping method. This calls for making no less than two recording entries for each and every transaction: a debit in one account and a credit in another account. The technique helps in avoiding errors since the sum of the debits should equal the sum of the credits. The three main financial statements generated by accounting are the income statement, the balance sheet, and the cash flow statement. Accounting possesses its own language. The special words and meanings which are found in accounting are occasionally present in common use. Quite often, the common use forms of these words possess a different meaning compared to what is used in accounting.
Definitions of Accounting
The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”
Accounting is an organized procedure of identifying, recording, computing, classifying, validating, summarizing, interpreting and communicating financial information. It discloses profit/loss for a specified interval, and also the worth and character of a company’s assets, financial obligations and owners’ equity.
Accounting Principles Board, “Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic activities that is useful in making economic decisions, in making reasoned choices among alternative course of actions.”
Accounting is the process of recording of financial transactions as well as keeping, sorting, retrieving, summarizing, and delivering the information through a variety of reports.
Accounting is a technique to communicate the financial health of an organization or a business to any and all interested stakeholders.
Process of Accounting
1. Recording: Recording is the process of entering the transactions and events in the books of original entry in chronological manner.
2. Classifying: It means posting of entries in the ledger to ensure that transactions of comparable naure are collected at one place.
3. Summarizing: It is involved with the preparation of financial statements for example income statement, balance sheet and cash flow statement.
4. Interpreting: Interpreting is the final phase of the accounting process. The accountants need to interpret the financial statements in a manner that they are helpful to the users of the accounting information. The accounting information system needs to be developed in such a manner that the right information is communicated to the right person at the correct time.
Hello Universal teacher, i request for your Help about how you practically record, classify and summarise transactions of an entity while making use of documents and books well as financial statements used.