The purpose of any business is to make profit through customer’s satisfaction. To make profit some business activates (Economic activities) are to be conducted. Any human activity directed at making profit is called business. Business is of different types. It may be trading activity i.e. buying and selling a goods and or services or manufacturing activity i.e. converting raw-materials into furnished goods. For this purpose money is needed. The money required, usually, contributed by proprietor / owner, in case of sole trading concerns. This is known as capital. A part of the money required may be borrowed from outsiders. In business there are many transactions which involves exchange of value, like purchase of goods, sale of goods for cash or credit, payment of various expenses like salaries, wages, rent etc. To ascertain the profit and financial status of a business it is necessary to record all these transactions systematically based on some principles. At regular intervals, i.e. at the end of each financial year (i.e. a period of twelve months) profit and loss account is prepared to know the profit and a balance sheet is prepared to know the financial position of the business. Profit and loss account and balance sheet are known as financial statements which provide accounting information to various parties who are interested in the business viz. Owners, management, employees, creditors, debtors etc., who are interested in the business viz. Owners, management, employees, creditors, debtors etc.,
Therefore, it is essential to maintain books of accounts to prepare and report financial performance of a business concern regularly.
Meaning of Accounting
Accounting is the process of recording, classifying, summarizing the financial transactions and events and communicating the information to its users who need it for decision making.
Accounting
Accounting refers to the actual process of preparing and presenting the accounts. In other words, it is the art of an accountant putting the academic knowledge of accountancy into practice. Accounting covers the following below:
- Identifying the transactions and events.
- Measuring the identified transactions and events in terms of measuring units.
- Recording the identified and measured transactions and events in journal.
- Classifying the recorded transactions and events in ledge.
- Summarizing the classified transactions and events in the form of Income statement ( Profit and Loss account, and financial position statement (Balance Sheet) )
- Analyzing the summarized results.
- Interpreting the analyzed results.
- Communicating the interpreted information to the interested parties.
