What is accounting?

Accounting is a language used in business. It is used to convey financial transactions and their outcomes. Accounting is a complete system for collecting analyzing and transmitting financial information.

The genesis of accounting is as old as the concept of money. In the early days the volume of transactions was small and anyone could record transactions for a particular time.

A quarter of a century ago an Indian scholar known as Kautilya known as Chanakya presented the accounting principles within his work Arthashastra.

In the book he explained the art of accounts and the method of ensuring that arrangements are appropriately checked. Gradually the area of accounting has experienced significant changes to keep up with the constant changes in the business world around the globe.

A bookkeeper can keep track of financial transactions according to specific accounting rules and guidelines and according to the instructions of an accountant based on the size and nature of the business its volume and other limitations of a company.

By using accounting procedures we can identify the profits or losses of the company at a particular date. Additionally it helps us evaluate the previous performance and formulate the next steps.

Definition of Accounting

The American Institute of Certified Public Accountants has defined Financial Accounting as: the technique of recording classifying and the process of analyzing in a meaningful way in relation to transactions money and events that are in part or at the very least have financial nature and interpret the results of these events.

Accounting is the term used to describe the process of combining and consolidating financial data to make it clear and easily understood by all shareholders and stakeholders. The primary goal of accounting is to document and report on the businesss finances financial performances and cash flow.

Accounting standards enhance the credibility that financial statements can be relied upon. Financial statements comprise the income statement and balance sheet the cash flow statement and the report of retained profits.

Standardized reporting permits shareholders and all stakeholders to evaluate the businesss performance. Financial statements should be precise reliable and exact.

The Key Features:

  • The term accounting describes consolidating financial data to make it clear and understandable to everyone involved and shareholders.
  • The primary objective of accounting is to record accurately and report on an organizations financial performance.
  • Accounting can be divided into two types: management accounting and financial accounting.

Accounting Types:

Accounting can be divided into two types: managerial accounting and financial accounting.

Financial Accounting:

Financial accounting is the process of preparing accurate financial statements. The purpose of accounting for financials is to assess the efficiency of a company in the most precise way possible. Although financial statements are intended for external drives they could also be of internal use by management to make better decisions.

Accounting rules and standards like US GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) are both practices widely accepted in the field of financial accounting.

Accounting standards are essential since they permit everyone involved and shareholders to comprehend and understand the financial statements reported throughout the year.

Managerial accounting:

Managerial accounting analyses the data that is gathered in financial accounts. It is the method of creating reports on business activities. These reports aid the management team in making strategic business choices.

Management accounting is a procedure that allows an organization to optimize its efficiency by analyzing the accounting data deciding the most efficient next steps and then communicating the future actions to the internal business managers.

A good instance of managerial accounting would be Cost accounting. Cost accounting is based on a precise breakdown of expenses to control costs efficiently. Accounting for managers is essential for making the right decisions.

Accounting Careers in accounting:

The job of accountants is to present and interpret financial data. Smaller companies may employ just one accountant. Larger businesses may have all of their accounting staff.

Accounting professions cover many jobs including bookkeeping tax preparation and auditing. Accounting professionals may be certified through the designations like Certified Public Accountant (CPA) in the U.S.

Chartered Accountant (ACA) in the U.K. Chartered Professional Accountant (CPA) in Canada and many more. The four biggest accounting firms in the world are Deloitte KPMG PwC and EY.

Scope and Objectives of Accounting:

Lets look at the primary goals of accounting:
  • To maintain systematic records Accounting is a process of recording a systematized form of transactions in the financial sector. Accountings primary goal is to assist us in collecting financial information and then documenting it efficiently to produce accurate and valuable results from financial statements.
  • To assess profitability by utilizing accounting tools we can determine the losses and profits incurred over a particular accounting period. Using the Trading and Profit & Loss Account makes it easy to identify a companys failure or profit.
  • To determine the companys financial condition the balance sheet or statement of accounts outlines a firms economic situation as of an exact date. A well-drawn balance sheet gives us an idea of the nature and worth of assets the type and amount of liabilities as well as the financial position of the business. With this information it is easy to determine the credibility of any business.
  • Helps in decision-making to decide for the future. One needs exact financial statements. One of the primary goals of accounting is making correct decisions at the right moment. Therefore accounting provides the opportunity to plan for the future using the aid of historical records.
  • To ensure compliance with the law business entities like trusts companies and societies are managed and controlled by different legislation. In the same way other tax laws (direct taxes indirect and direct) are equally applicable to each business establishment. Every business must maintain various books and records required by the states laws. Accounting is essential to run an enterprise following directions.

You can find proper Accounting Mcqs on this website. These are up-to-date and regarding a good syllabus and you can download these Mcqs and train yourself for tests interview questions etc.

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