Accounting

What is accounting

Accounting is a language of business. In simple language, accounting is an art of recording, classifying, and summarizing business transactions in a systematic manner and in terms of monetary transactions and events which are, by some means, at least of financial character and interpreting the results thereof. The art of recording involves writing the transactions of financial nature reasonable soon after the occurrence, in records maintained by the company. The classifying is concerned with the systematic analysis of the recorded data under appropriate heads of accounts. The summarizing is presenting data in a manner that is useful to internal and external end-users of accounts.

Accounting is the process of communicating financial information about a business concern to users such as shareholders and managers. The communication is generally in the form of financial statements that show in monetary terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the users and is reliable too. The principles of accountancy are applied to business entities in three divisions of practical art, named as accounting, bookkeeping, and auditing.

Who are users of accounting information?

 Owner/manager of the business
 Prospective owners of the business
 Banks/Lenders
 Suppliers of goods or materials
 Government
 Employees/unions
 Customers

Accountants in different parts of the world prepare accounting information in the exact same format treating transactions the same way. How does this happen? How do accountants in all towns, states, and countries know what to do? There are some rules of accounting. These rules tell an accountant what to do in a certain situation.

Rules of accounting

Rules of accounting are of two types as follows.

Qualitative Characteristics

 Relevance
 Reliability
 Comparability
 Understandability

Accounting Principles

 Entity
 Historical cost
 Going concern
 Reporting period
 Monetary unit
 Conservatism
 Consistency