Accounting Overview - Accounting Basics

Explain in detail the concept of Accounting

A business language used for communicating the financial transactions and the results is known as Accounting. The financial data is collected, analyzed and communicated by Accounting.

The concept of Accounting is very old. The Indian scholars Kautilya (Chanakya) introduced the concept of Accounting in his book Arthashastra. The art of account keeping and the methods of checking the accounts were described in his book. In compliance with the business scenario of the world, the field of accounting has undergone remarkable changes.

Depending on the size, nature, volume and constraints of a particular organization, the financial transactions are recorded by the book-keeper according to certain accounting principles and standards as prescribed by an accountant.

The profit or loss of the business can be determined for a particular date by the process of Accounting. The past performance is analyzed and the future course of action is planned by Accounting.

Define Accounting

The American Institute of Certified Public Accountant has defined Financial Accounting as:

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

What are the objectives and scope of Accounting?

The main objectives of accounting are as follows:

  • To keep systematic records – Financial transactions are systematically recorded by Accounting. The financial data is collected and is recorded systematically and the correct and useful results of the financial statements are derived by Accounting.
  • To ascertain profitability – The profits and losses incurred during a particular period is evaluated by using accounting. The profit or loss of a firm can be determined easily by Trading and Profit and Loss account.
  • To ascertain the financial position of the business – The financial position of a company at the particular date is determined using a balance sheet or statement of affairs. The value of the assets and liability, nature of the business and the capital position of the firm can be determined by the Balance sheet including the soundness of the business entity.
  • To assist in decision-making – One of the objectives of accounting is to take right decisions at right time. Hence the platform to plan for the future is provided by accounting by using the past records.
  • To fulfill compliance of Law – Different types of accounts and records as prescribed by the corresponding laws of the land are to be maintained.

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