All the businesses running in today’s era are habitual and familiar with the term “Accounting” as it is a very crucial part that helps to analyze the growth of the business in financial and other aspects. Do you know Why?
Here is the answer!
Accounting helps a business to evaluate its worth and take future decisions accordingly. Along with accounting comes the term book keeping. Book keeping is the base provided to accounting as it is just a part of accounting. So, for business in every country or state, accounting stands to be the utmost important part.
Primarily to make a difference between both the term as they are almost similar terms, it is said book keeping is a minor part that is helpful in the further process of accounting. Accounting on the other hand utilizes the information prepared by book keeping for preparing financial reports and statements of the company.
What is Accounting
The term accounting simply means recording of business transactions and verifying the results. It includes *recording, summarizing, reporting and analyzing of *financial transactions in a company. To reach to the desired objective set by a company, accounting play a major role as it records permanently all day to day transactions.
And once all the company’s business transactions are recorded of a financial year, the person assigned to maintain the records shall consolidate the information stored in the accounts and classify it into three broad categories covered under *financial statement.
*Recording fall into the following classification:
- Assets
- Liabilities
- Equity
- Expenses
- Revenue
*Financial transaction includes:
- Sale
- Purchase
- Receipts
- Expenditures
*Financial statement includes:
- Income statement
- Balance sheet
- Statement of cash flows
Advantages of Accounting
- Upkeep business records – in accounting every single financial transaction is recorded of every financial year to help in future estimation of the ongoing business.
- Prepare financial statements – in accounting, preparation of financial statement like Trading A/c, Profit & Loss A/c and balance sheet are prepared for better and proper recording of business transactions.
- Evidence for legal matters – as accounting provides with keeping up of permanent records of business transaction, it can be used as an evidence if in case any legal matter arises. In order to proof something as an evidence, the accounting proves to be really beneficial.
- Measurement of Outcome – when all the transactions are recorded well in advance with the help of accounting, it is easy to measure whether the company’s goal is getting accomplished or not or need some changes.
- Helps in decision making – accounting helps in making decisions for the future by analyzing and tracking income and expenditure, ensuring statutory compliance and other necessary parameters.
Accounting has a broad categories of accounting. The types of accounting are:-
- Cost Accounting: it includes total production cost of a business and measures the cost incurred that helps to make strategic decisions for the future.
- Financial Accounting: it includes process of recording, summarizing and reporting of financial transactions arising from business.
- Managerial Accounting: it is a branch of accounting where the management of the business uses several financial information to make strategic plans
- Tax Accounting: it focuses on annual financial statement of the companies and to track funds inflow and outflow.
All in all, as food is the basic need of every human, similarly accounting is a necessity of every business entities. May it be big or small! To keep a record of every transaction, accounting plays crucial role
