What is Accounting?
Accounting is an art of classifying, recording, summarising in a significant manner. It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and owners’ equity.
Accounting provides information on the resources available to a firm, the means employed to finance those resources, and the results achieved through their use.
Why you need Accounting?
Accounting is essential if you want to be able to grow your business in a way that can be measured and predicted. Having a system of tracking your business assets, liabilities and income lets you make smart, informed business decisions based on the past performance and present financial health of your company. With a clear, organized accounting system you can not only analyze your company’s financial data but also help it grow and profit.
Sound accounting also helps you satisfy your customers. Knowing where your company stands financially in terms of income and expenses will help you better understand what you need to do in the future to maintain that level of customer satisfaction and your business.
It helps in the preparation of financial statements.
Accounting information is also used to compare the result of the current year with the previous year to analyze the changes.
It helps the managers in the decision making process.
It provides information to other interested parties such as shareholders, creditors, investors, customers, government, employees.
It helps in taxation matter
Accounting information can be produced as evidence in the legal matter.
It helps in the valuation of the business.
The items expressed in monetary terms are recorded in the accounting whereas the items which are non monetary nature not recorded.
Sometimes accounting data are recorded on the basis of estimates and which could be inaccurate.
Fixed accounting are recorded as the original cost.
Value of money does not remain stable so accounting value does not show true financial results.
Accounting can be manipulated and biased.
Analysis of the transaction.
Prepare the transaction in source documents such as purchase order or invoice.
Qualify the transaction in monetary terms.
Record the transaction by making entries in the appropriate journal.
Post journal entry to ledger accounts.
Prepare trial balance to make sure that debit equal to the credit account