WHAT IS ACOUNTING?

 “Accounting is the art of recording, classifying, and summarizing in a significant manner in terms of money; transactions, and events, which are, in part at least, of a financial character, and interpreting the results thereof.” • -The American Institute of Certified Public Accountants Accounting records only those transactions and events that can be measured in terms of money. This involves identifying transactions that are part of economic activity. examples: Purchase of Raw Materials sale of finished goods payment of expenses purchase of land & building purchase of machinery These transactions are identified with the help of Bills and receipts as evidence of the transactions. 

1. Identification of Financial Transactions and Events

Accounting Measures the transactions and events in terms of a common measurement unit i.e., the currency of a country, in other words, financial transactions, and events are measured in terms of money. examples: rent paid Rs.5000 Purchased raw material for Rs.10,000 Paid electricity bill of Rs.3000 An Event that can not be measured in terms of money is not recorded in the books of account. for example, the Appointment of a manager or quality of Management. Accounting is the art of recording business transactions in the books of account. The recording process is done in the” original entry” book called “Journal”. This book is subdivided into subsidiary books as Cash Book, for recording the only cash transactions Purchase Book for recording the credit purchases, and Sales Book for recording the credit sales, etc. 3. Recording 4. Classifying This is the process of grouping transactions or entries in one place. The transactions recorded in the Journal of the subsidiary books are classified or posed to the main book of Account, the “ledger”. For example in Rahul’s Account Ithe ledger, all business transactions related to Rahul are posted so that what is ultimately due to Rahul's ordue from Rahul can be ascertained easily. 5. Summarising This involves presenting the classified data in a manner that is understandable and useful for the internal and external users of Accounting Statements. This process leads to the preparation of the following statements. 1.Trading and Profit and Loss Account. 2.Trial Balance 3.Balance Sheet Collectively known as Final Accounts or Final Statements. 6. Analysis & Interpretation In this process, the company does Analysis and Interpretation so that it can make meaningful judgments. It helps in planning for the future in a letter way. This means we got the report card of the company in the form of a Profit & Loss Account and Balance Sheet. From this report card we are ascertaining the health of the company means the profitability and Financial Position of the company. 7. Communicating Here in this final feature or step, All the financial data is communicated to its users. The Accounting information must be provided in time and presented to the users so that appropriate decisions may be taken at the right time. 




 2. Measuring the Identified

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