Wednesday, January 14, 2009

What is Accounting?

Accounting is the process, applied in a business which comprises recording the data, classifying and summarizing the data, presenting the results to the owner(s) of business.

During business, events like receiving cash from customers, payments to supplies, purchasing goods for sale out, sale of goods, salaries, wages and so on take place. These events as mentioned are generally called transactions. Every transaction concerned with receipt and payment of cash or otherwise, must be recorded in the books. The books in which such transactions are recorded are General Journal and Subsidiary Books like Cash book, Sales Journal, Purchase Journal etc.

The Transactions, which are recorded in General journal and Subsidiary books are then sorted and arranged for analyzing. Moreover, these individual accounts are balanced-off and list of these balances is prepared which is termed as Trial Balance. These records are kept for the purpose of calculating profit or loss. Likewise, they want to know how much the share of recources is owned in the business. Financial statements like Trading and Profit & Loss account and balance sheet are prepared for achieving these objectives.

After preparing financial statements, the finance/accounts managers clarify the business position to the owners. They convey to them the strong and weak points of the business.

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