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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


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.


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


It is the value of goods withdrawn from the business by the owner for his personal use.


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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