Accounting is one of the key functions for almost any business and it is considered as the language of business. It may be handled by the bookkeeper or accountant of the company. To provide relevant information, accountants must have a thorough understanding of the principles and rules that provide the basis for preparing the accounting information. Furthermore, accountants must develop a system to make sure that the entity’s economic events are properly recorded on a timely basis and at a reasonable cost.
Accountants collect and communicate economic information about business enterprises or other entities to a wide variety of persons. Financial statements must be clearly understandable and comparable so that users may compare the performance of one business with the performance of the same business for a prior period or with the performance of another similar business. Therefore, all general purpose financial statements should be prepared in accordance with the same uniform guidelines.
The essential characteristics of accounting are: (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties.
Accounting is defined as the analysis and interpretation of bookkeeping records. This includes the maintenance of accounting records and also the preparation of financial and economic information which involves the measurement of transactions and other events relating to the entity. The purpose of financial information is to provide inputs for decision making.
The process of accounting starts by first identifying the events and transactions which are of financial nature and then be recorded in the books of account. This recording is done in Journal or subsidiary books. A good bookkeeping system includes suitable classification of transactions and events as well as their summarization for ready reference. After the transactions and events are recorded, they are transferred to secondary books such as Ledger.
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