Accounting:
Accounting is the process of recording, summarizing, analyzing, and reporting the financial transactions related to a business
In simple words, accounting can be defined as keeping records of all financial transactions related to an individual or an entity. And then there are pre-defined rules and procedures in the way a transaction should be accounted for. This is what we call debit or credit, income or expenditure, asset or liability. There are then rules on whether it would be an asset or an expenditure and so on.
Accounting refers to the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information
Accounting may be defined as the collection, compilation and systematic recording of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports and the use of these reports for the information and guidance of management
Accounting is the processor keeping the accounting books of the financial transactions of the company. The accountants summarize the transactions in the form of journal entries. These entries are used in bookkeeping. The books of accounts are prepared by the accountants as per the regulation of the auditors and various regulating bodies. The accountants might follow the Generally Accepted Accounting Principles (GAAP) or the IFRS (International Financial Reporting Standards) principles
Types of Accounting
| Financial Accounting | The systematic process used to generate the financial results of a business organization. The result of all the financial transactions of an entity is summarized and recorded in terms of the Balance sheet, Statement of Profit and Loss, and Statement of Cash Flows. |
| Cost Accounting | For every business, it is of great importance to determine the cost relating to product manufactured and cost accounting helps the businesses to make costs decision. The results produced can be used to determine what a product should costs. |
| Forensic Accounting | This accounting is an important branch of accounting that collects, recovers, and restores the financial information as a part of the investigation process. In order to widen its scope, a proper framework defining a set of benchmarks for forensic accounting is in motion. |
Accounting Concepts
- Separate Business entity concept: While accounting for a business organization, we make a clear distinction in between the business and the owner. All the business transactions are recorded from viewpoint of the business rather than from the viewpoint of the owner. The proprietor is considered to be a creditor of the entity to the extent of capital bought by him.
- Double Entry concept: Every financial transaction requires two aspects of accounting to be recorded for example if a firm sells goods worth 5,000 $ this transaction involves two aspects. One is reduction in stock worth 5,000 $ and other receipts of 5,000 $ cash. The record of these two aspects of a single transaction is termed as a double-entry system. According to this rule, the total amount debited will always match total amount credited. The fundamental accounting equation to above rule is:-
Assets = Liabilities + Owners Equity - Going concern concept: Accounting assumes that business will continue to operate for a longer period of time in future. In other words, it is assumed that neither there is any intention nor necessity to curtail the business operations of entity. It is on this basis that financial statements of a business entity are prepared and referring to which investors agree upon their decision to invest in the business.
- Matching concept: This concept states that the revenues and expenses must be recorded at the same time at which they are incurred. In general, we match the revenues with the expenses incurred during the accounting period. Broadly speaking, income earned during a period can be measured only when it is compared with the related expenses incurred. On the basis of this concept several adjustments are made for prepaid expenses, accrued incomes, etc. while preparing financial of a period.
