WHAT IS ACCOUNTING ?
Accounting is basically known as the language of business. The Accounting system is a man-made system has evolved over a period of time to provide financial information to users of financial statements.
It can be defined as a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information.
It plays an important role in smooth functioning of business organisation through systematic recording of business transactions.
CHARACTERISTICS OF ACCOUNTING
The following are the main features of accounting :-
- Recording of Financial Transactions only :- Only those transactions which are financial in nature are recorded in account ting. For example :- purchases of goods of Rs 50,000.
- In Monetary terms only :- All the transactions are recorded in the books of accounts in terms of money. For example sale of furniture for Rs 10,000 etc.
- Classifying :- After recording the transactions, the business transactions are classified. Classifying is the process of grouping transactions or entries of the same type at one place. This is done by opening accounts in a book called ledger. Ex – Purchases A/c , Ram A/c etc.
- Summarising :- Summarising is the art of presenting the accounting data in such a manner that it is understandable to all the users. Generally, final accounts i.e Trading & p/l account and Balance sheet are prepared for summarizing.
- It is an art of interpreting the result :-Accounting is also an art to determine the financial position of the business, the progress made and how well it is getting along.
- Communication :- After properly being analysed and interpreted , the accounting information has to be communicated in proper form to the proper person. This is done through preparation and distribution of accounting reports such as accounting ratio, graphs, diagrams etc.
Thus, in a nutshell, Accounting is a process in which the transactions are identified, recorded, arranged, summarized, simplified properly and then communicated to the interested parties.