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Accounting is the art and science of classifying, recording, and summarizing the financial data in the books of accounts. It is also called the language of business, a continuous human economic activity. This Accounting process begins when a financial transaction takes place and is to be processed systematically to provide helpful information to the interested parties of the business.

Accounting involves the following characteristics.

  • It is the art of recording financial transactions.
  • This involves making summaries and analyses of financial transactions.
  • It is the “language of business,” which means it communicates with the parties concerned through accounting statements.

Objectives of Accounting

  • These records show incomes, expenses, and losses to ascertain the financial position quickly.
  • To maintain the sheets of assets and liabilities accurately.
  • To provide the information for legal and tax purposes.

Advantages of Accounting

  • Innumerable monetary transactions occur in any business organization where accounting helps maintain its systematic records.
  • It helps them in ascertaining the correct profit and loss of the company.
  • Accounting records and reports help the management plan, control, and make decisions.

Limitations of Accounting

Accounting is historical as it only gives information in numerical words in the form of a profit and loss balance sheet.

It does not provide any detailed analysis.

It ignores non-monetary information.

Accounting does not reveal the efficiency of a business concern.

Accounting Terms

Business:

This is an activity that involves the exchange of goods and services.

Business Transactions

It refers to any transactions, dealings, or events involving monetary terms or money.

Capital:

The amount the proprietor invests in the business is known as “owners’ equity.”

Drawings:

It is the value of goods withdrawn from the business by the owner for his personal use.

Transactions:

It happens when the money is credited and debited in the company.

Here, bookkeeping is also a part of the accounting process.

 

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