Introduction and concept of Accounting

-

Introduction and concept of Accounting

 Accounting is the whole process of systematically recording, classifying, summarizing, and analyzing all financial transactions and information. It is therefore a tool used in tracking the financial activities of an organization or a company and itemizing the same in such a notation through which stakeholders involved, including investors, mangers, regulators, as well as the general public, are able to understand.

  

Concept of Accounting

Elaboration:

**1. Recording:**

Recording, popularly known as booking-keeping, refers to the putting down in writing of all financial transactions that occur in a business. All the transactions are written down one after the other as and when they occur in the books of accounts or software. This ensures that every financial activity is captured in its entirety and with accuracy.


**2. Classifying:**

Classifying is the process by which recorded transactions are organized and grouped into appropriate accounts. This process facilitates the summarizing and reporting of financial data. Examples of classification include classifying expenses such as utilities, salaries, and office supplies.


**3. Summarizing:**

: Summarizing is the collection of the information that has been classified, and tabulated to form financial statements. Preparing reports which present in brief substantial financial data usually balance sheet, income statement, cash flow statement etc; giving the desired meaning of the entire process by portraying a good picture of financial position and performance of the company.


**4. Analyzing:**

Interpretation The analyze process includes the interpretation of the summarized data. Good Interpretation of financial data provides meaningful understanding about the financial position of an organization and, therefore, helps in informed business decisions and evaluating past performance and planning the future.

             

          Objectives of accounting

Accounting forms one of the most critical parts of your managing your financial system. Mainly, accounting seeks to ensure accurate recording, reporting analysis, and then conducting a financial transaction to arrive at a decent decision and also to comply with the regulations of law. Below is the list of the primary objectives of accounting:

1. To Maintain Systematic Records: Systematic Documentation: It ensures that all the financial transactions are recorded methodically so that a clear and complete financial history is available. Chronological Order: These are recorded in the order of their occurrence. So, it gives orderly records and is easy to understand and refer to.

2. To Ascertain Profit or Loss:
Income Statement: This is a statement that summarizes revenues and expenses to get the net profit or loss of a business during a particular period.
Financial Performance: This would help to evaluate the operating efficiency and profitability of the concern.

3. To Know the Financial Position:
Balance Sheet: It presents the picture of the financial position of a business at a given point in time in terms of its assets, liabilities, and equity.
Liquidity and Solvency: It provides the information concerning the capability of a company to pay off its short-term obligations and long-term debts.

4. To Provide Information to Stakeholders:
Internal Stakeholders: It provides to its management useful financial information to make decisions, write plans and exercise control.
External Stakeholders: It provides investors, creditors, regulators, and other the outside world good quality financial information for their respective purposes of decision-making.

5. To Facilitate Legal Compliance:
Regulatory Requirements: Ensures that the financial statements and reports comply with accounting standards, laws, and regulations.
Tax Filings: Facilitates filing of tax returns on time and accurately, in compliance with relevant tax laws and regulations

6. To Support Decision Making:
Strategic Planning: Provides data that facilitates development of strategies and business plans.
Operational Decisions: Provides data that facilitates day-to-day decision making in business, for example, budgeting, pricing, and investment.

7. To Facilitate Financial Control:
Budgeting: Helps in the preparation of budgets to plan for and control financial resources.
Variance Analysis: Compares actual performance with budgeted figures to find deviations and error areas to take corrective steps.

8. To Ensure Transparency and Accountability:
Financial Reporting: Prepares transparent financial statements that reflect the true and fair financial position and performance of the business.
Accountability: Makes management answerable for financial decisions taken by them regarding performance through proper, correct, and prompt financial information supplied.

9. To Protect Business Assets:
Safeguarding Assets: Establishes and enforces internal controls and audits to prevent misuse of an organization's assets for theft, fraud, and mismanagement.
Asset Management: Maintains accurate records of assets that help its effective management and utilization.

10. To Facilitate Financial Forecasting and Planning:
Trend Analysis: As historical financial statements are readily available, so trends can easily be identified and financial performance in the future can be estimated through trend analysis.
Long-term planning: Helps managers in long-term financial planning, that include projecting: future revenues, expenses, cash flows, etc.

    Conclusion

In conclusion, we are concluding that accounting is the backbone of any business's financial management. It ensures accurate recording and reporting of financial transactions, providing valuable insights into the organization's financial status and aiding in efficient resource management and strategic decision-making.

follow us:

 

 

  

Comments

Post a Comment

Popular posts from this blog

EXPLANATION OF PLANNING AND ITS FEATURES

-
Image
 EXPLANATION OF PLANNING AND ITS FEATURES Planning, therefore, is the process of pre -deciding about what is to be done and how it can be organized and arriving at a decision on how best to do it so that certain goals or objectives can be achieved. It is the course of actions taken toward the future by considering alternatives and then making a determination on the best course of action to realize the desired end result. Basically, it involves designing a roadmap that can act to manage and direct actions and decisions toward success. Planning is a crucial process in both personal and professional contexts, involving the formulation of a detailed strategy or plan to achieve specific goals or objectives. Here’s an overview of the key aspects of planning:   Definition Planning is the process of thinking about the activities required to achieve a desired goal. It involves the identification of resources, setting objectives, and determining the steps necessary to reach those objec...
Read more

What Is Staffing? Meaning, Importance, Process

-
Image
 What Is Staffing? Meaning, Importance, Process Staffing is the managerial function that consists of planning, recruitment, selection, training, and development of employees within an organization. It means basically identifying the requirement of human resources for performing various tasks in any organization.  This includes attracting suitable candidates and ensuring they are placed in roles wherein they would prove most effective. It is a principal or primary function of management, which ensures that proper people with proper skills are available at proper places and proper time. Key elements of the process of staffing would include:   Workforce Planning: Determination of the size and type of workforce an organization should possess to achieve the organizational goals. Recruitment: The process of attracting candidates with the required qualification to apply for jobs Selection: The process of generating applicants for available positions in an organization, then e...
Read more

14 PRINCIPALS OF MANAGEMENT BY HENRY FAYOL

-
Image
 14 PRINCIPALS OF MANAGEMENT BY HENRY FAYOL The principles of management imply the starting principles or rules on which effective management practices are founded. They are deduced from experiences, observations, and analyses of successful management practices that provide a framework for managers to understand, predict, and influence organizational behavior. Such principles facilitate managers in attaining organizational goals efficiently and effectively by providing insights into how to manage people, processes, and resources. Henri Fayol was a French mining engineer and management theorist who developed 14 principles of management in the early 20th century. These principles have been such that they served as a guide to managers in managing organizations efficiently and effectively. The detailed explanation of each principle is given below: 1. Division of Labor: Specialization increases the output of the workforce due to the reason that every worker performs specific tasks. Divi...
Read more