Understanding Accounting

Accounting is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. 

This blogs talks about the terminology used in Accounting. This is best suited for people who have just dived into the world of accounting.

So make sure to go through this blog before your balance sheet disbalances !

Accounting

Accounting is a science of recording, classifying and presenting financial data of economic entity by observing, detecting, identifying business events via testing and presenting methods.

According to AICPA (American Institute of Certified Public Accountants) accounting is also an art of recording, classifying and summarizing, in a significant manner, and in terms of money, business transactions and events which are at least of financial nature.

Do not get confused between the relation of accounting with science and with arts.
Accounting is a science because it follows various principles and fundamentals whereas it is an art because it involves critical thinking and decision making. Accounting is not a pure science because the principles and fundamentals are regularly changing and upgrading.

Accounting does not only means recording events but it also involves various other processes. These various processes are listed down below:

• Only those transactions are recorded in the books of accounting which are of financial character and which can be recorded in terms of money.

• The transactions or events with financial character are finally recorded.

• Classification : The transactions with similar nature and character are recorded at one place.
  The book in which separate accounts are open is called Ledger.

• Finally the recorded data is summarised in a significant manner so that it is understandable and presentable to all the interested parties. It includes balancing the ledger accounts and preparation of trial balance.

• Finally the result is interpreted to the interested parties. The current scenario of the company is communicated with company members, internal and external parties.