What is Accounting ? The Answer of the question Every business entity be it a sole proprietor , company, partnership etc. do numerous of economic transactions everyday.
Now since human memory does not have that much capability to remember how much amount is due from a party. How much his business entity owe to a party. How much stock leave with him to fulfill future demand of consumer. Moreover many such business related questions.
What is Accounting ?
Accounting, which refer to as the “language of business”
So what he does is maintain a register recording every transaction called journal entry recording of his business. So that he can refer this register for any business decision.
Also this register journal entries is further sorted in the form of ledger accounts. So that we can see transactions of similar nature under one head. Thus increasing our convenience of reference of business accounts information. This step calls as classification
Now this process works as continuously and simultaneously with the business operations.
After some time called financial period. Every business entity wants to know how much profit it made called financial profitability. Moreover how much assets he possess and how much amount he owe to the outsiders called financial position. So a profit and loss account prepare to determine profitability. A balance sheet prepare to determine financial position.This step calls as summarization.
Now such information prepared for a financial period( usually 1 yr) holds very much importance in making numerous business decisions and financial decisions. This information is relevant not only for the owner but for various outside parties as well such as supplier, debtors, creditors, government, potential investors, auditors etc. So such information is communicated to the above mentioned parties. This step calls as Communication.
In nutshell Accounting is systematic since based on principles called accounting principles. It also a process of recording journal entries, classifying ledger accounts making, summarizing balance sheet and profit and loss account and communicating to various stakeholders financial information. Finally comments in Ask me Answer Inbox.