✅What is Accounting?
✅ Accounting procedures
✅What is Accounting and it’s procedure?
✅ Accounting definition.
✅ Process of Accounting
✅Steps in Accounting.
Accounting does not operate in a static manner. Its function has shifted dramatically as the discipline of economics and commerce has progressed. Accounting is the process of analysing and interpreting financial records. It entails not only the book-keep of accounting records, but also the creation of financial and economic data, which includes the measurement of transactions and other entity-related events.
Process of Accounting
Accounting as an information system refers to the process of finding, measuring, and conveying an organization’s economic data to users who require it for decision-making.
The steps in the accounting process are as follows:
1. Identifying the transaction and events:– Accounting identifies a single entity’s transactions and events. A transaction is a value exchange in which each party receives or gives up something of value. An event (internal or external) is an occurrence that has implications for an entity. An entity is a type of economic unit that engages in economic activity.
2. Measuring the identified transaction and events:-
Accounting records transactions and events in terms of a single measurement unit, the country’s official currency. Before being recorded in India, these transactions and events are measured in rupees.
3. Recording:- Accounting’s fundamental job is to keep track of money. It is primarily concerned with not only ensuring that all financial business transactions are recorded, but also that they are recorded in a timely way. The ‘Journal’ is used to keep track of everything. This Journal can be divided into several sub-books, such as a cash journal (for documenting cash transactions), a purchase journal (for recording credit purchases of goods), a sales journal (for recording credit sales of products), and so on. The number of subsidiary books that must be kept will be determined by the kind and size of the company.
4. Classifying:- Classification is the process of systematically analysing recorded data in order to put transactions or entries of the same type together in one location. The classification process is done in a book labelled ‘Ledger.’ This book has individual account heads on different pages that aggregate all financial transactions of a similar sort. For example, distinct account heads could exist for trip expenses, printing and stationary, advertising, and so on. After being entered in the journal, all expenses under these headings will be grouped under different ledger categories. This will aid in determining the total amount spent under each of the aforementioned headings.
5. Summarising:- The task entails presenting the classified data in a way that is both understandable and valuable to internal and external accounting statement users. As a result of this procedure, the following statements are created:
1) Trail Balance
2) Income statement, and
3) Balance sheet.
6. Analysing:- It deals with establishing relationships between numerous things or groups of goods obtained from the income statement, balance sheet, or both. The goal of the analysis is to determine the company’s financial strengths and weaknesses. It serves as a foundation for interpretation.
7. Interpreting:- Its goal is to explain the meaning and relevance of the relationship that the analysis has established. The first six functions are now fulfilled by computerised data processing systems, leaving the accountant to focus solely on the accounting interpretation issues. The accountants should interpret the financial accounts in a way that is valuable to the users, allowing them to make sensible judgments based on a variety of options. The accountant should explain not just what occurred, but also (a) why it occurred, and (b) what is likely to occur under certain circumstances.
8. Communicating:- After being properly analysed and understood, accounting data must be presented to the appropriate person in the suitable format and manner. This is accomplished by the development and distribution of accounting reports, which include additional information in the form of accounting ratios, graphs, diagrams, funds flow statements, and so on, in addition to the standard income statement and balance sheet. This method puts the accountant’s initiative, ingenuity, and capacity to innovate to the test.
An accounting cycle precedes communication, during which the identified and measured transactions and events pass. Accounting fulfils one of the most basic functions of a language: it serves as a medium of communication. It is an information system that communicates accounting data to users (internal and external) in order for them to make informed decisions. Accounting can be considered as an information system in figure.