Accounting is the activity and skill of creating and maintaining money records for an organization or a person. It requires creativity, judgment expertise, and knowledge of certain principles and rules to set-up the records of money earned or spent. Let us try to understand the concept by taking its concepts into consideration-
- Concerned with financial character of the events and transactions – RECORDING
The basic function of accounting involves creating raw data by recording the transactions events of financial value. For this, the accountants classify all the data into the categories that are defined in the accounts chart. As and when the firm makes a commercial transaction firstly, the accounting expert record sit and then updates it in the summary record.
- Accounting involves classification of data- SUMMARIZING
Too many pages of raw data don’t help the organization in decision making. Moreover, it is inconvenient to find details of a specific transaction and when needed. It is for this reason the data is summarised by grouping the items of similar nature.
- Business transactions are expressed in terms of money-REPORTING
The management is answerable to the investors about the company’s state of affairs. The owners and the investors need a periodic update about the operations that are conducted using their money. It is for this reason periodic reports are generated using the summarized information. Technically, the reports are termed as financial statements.
- Results interpretation-ANALYSING
Interpreting results are one of the essential phases of accounting. All the data in financial statements that are recorded in the books is of no use if it cant be understood and interpreted. The figures, amounts, and other monetary information in the financial reports help the management in decision-making.
By now, you must have got a better idea of accounting and some important related concepts. Know that the simple things you do every day like making budgets, checking receipts, making budgets is nothing but accounting. Accounting helps the businesses to manage their money and seek profit statements.