• thinkigcse.com

What is Accounting?

Being known as “The Language of business”, accounting is the basic need of a business organization to find out where it stands.accounting

According to American accounting association, accounting has been defined as,

The process of identifying, measuring, and communicating information to permit judgment and decision by the users.

Yet another definition of American Institute of Certified Public Accountants (AICPA) is that

Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.

Accounting entails recording, classifying and summarizing of business transactions.

It is a process of identification, measurement and communication of economic information involving four interconnected phases.

Accounting Process

They are outlined herein: At the outset, the first phase is meant to record the economic events or transactions -depending upon their occurrences, chronologically in the books of accounts - called journals. This process is known as journalizing.

Next comes the phase of ledger-posting: It is the process by which all the transactions are synthesized account-wise so that the accumulated balance of each of those accounts can be determined. The process of ledger posting is vitally important as it helps in ascertaining the net effect of various transactions during a given period.

The subsequent stage is preparing the trial balance which involves the arrangement of all ledger accounts having been aggregated into debit and credit balances. This activity enables to check and confirm whether the total of debits is equal to that of credits.

Finally, comes the phase of preparing financial statements. This phase is meant for finalization of accounts by measuring profit & loss account and preparing Balance Sheet- at the end ofaccounting period.

Why do we need accounting?

Every business needs to have two prime objectives, such as, to earn profit and to remain solvent and the information in relation to these objectives while ensuring whether they are being accomplished is provided by accounting.

Accounting is important in the sense that it enables a business house to maintain complete and orderly prepared records of economic events by way of preparing books while facilitating the information for various purposes.

Furthermore it helps to ascertain the net results in terms of profit or loss (Income Statement) and providing the information about financial position of the business (Balance Sheet) to the owners of a business relating to what the entity owns in the form of assets and what it owes in the form of liabilities at a particular point of time.

Accounting information is valuable to the concerned managers too so as to ensure whether the business entity is being directed as it should be, and simultaneously it is a means to provide the information to the investors to find out the future prospects ofbusiness.

It is also useful for the employees and customers in order to know the condition of the business entity.

Accounting is the basis and of a great assistance to management for planning, controlling and decision making process. It is with the help ofaccounting information that the performance of an entity can be appraised, at the same time as, its methodical records make possible to eliminate the frauds and the thefts.

Furthermore, being concerned primarily with the creation of financial information for its users, accounting provides useful information for ascertaining the effectiveness and efficiency of a business. Hence, accounting is must for every business. Exclusive of accounting leads to create chaos and discrepancies in business transactions.

 

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

WHO'S ONLINE

We have 150 guests and no members online

MindMaps

PDF FILE

Download

Cheatsheets

PDF FILE

Download

Crosswords

PDF FILE

Download

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline