Function of Accounting

Recording :

It is concerned with recording all the financial transactions in orderly manner in the proper books of accounts. Transaction are recorded in “Journal” in chronological manner.

Classifying:

It deals with classification of recorded transactions so as to group similar transactions at one place. It is done in ledger, where similar transactions are recorded at one place under individual account heads e.g., in sales account all sale of goods recorded, purchases account, all purchases of goods are recorded.

Summarizing:

It involves presenting classified transaction in a manner useful to both its internal and external users. It involves preparation of financial statements i.e. profit & loss account and Balance sheet etc.,

Analyzing:

The recorded data in financial statement is analyzed to make useful interpretation. The figures given in financial statements need to be put in a simplified manner e.g. All items relating to fixed assets are placed at one place while long term liabilities at one place.

Interpretation:

It deals with explaining the meaning and significance of the data simplified. The accountants should interpret the statements in a manner useful to the users. It aims at drawing meaningful conclusions from the information. E.g. liquidity position, profitability position etc.,

Communicating:

The accounting information is to be communicated in a proper form and manner to the persons interested in the business. It involves preparation and distribution of reports to the users to make decisions.

Advantages of Accounting:

Accounting helps in ascertainment of profit / loss and financial position the business every year. It replaces human memory by maintaining complete record of all financial transactions. It facilitates to comply with legal requirement of maintaining books of accounts, users to take decisions, ascertainment of cost of product / service. It also helps the management in planning and controlling business activities and evaluation of its performance in relation to other firms in the same business.