“Accounting is the art of recording ,classifying and summarising in a significant manner and in terms of money,transactions and event which are, in part at least ,of a financial character and interpreting the result thereof “.
Accounting is the Language of Business. Accounting Terms are used to explain things happening int he business.
Purpose of Accounting
The purpose of accounting is to provide financial information about any economic entity,a business enterprise. the management required this information to plan and control the business activities. The financial information of a business even required for the investors and creditors to know the trust factor or goodwill of the business.
The three pillars of accounting
Recording of transactions
A business require systematic record of business events.Only events which can be measured in terms of money such as goods purchase & sold, cash is received etc.But you will not record happenings like appointment of managers, contract signing etc.
Analyzing of transactions
After recording money related events, We have to classify or categorize such records for greater understanding of each events.For example classifying all sales transactions will help you to get a greater understanding of the event sale in a business.
Summarizing of transactions
And Finally summarizing, To take advantage of recorded& classified transactions ,you have to make it summarize in the form of report or statement.You would probably attempt to show where the business stood at the time of report.and the process by which it had arrived the position.
The accounting aims beyond the recording of data.An accountant shall be insightful about the relation between the business events and the financial result . The ultimate aim is the analysis and interpretation of data. There by a better financial and business planning and implementation and better business result.