What is accounting?
Accounting may be considered the language of a business. However, instead of passing information in words, information is passed in the form of numbers. It is similar to the way statistics pass information about something in numerical form.
Accounting is the process of recording, classifying, analysing, and interpreting financial transactions and information.
Accounting is the way of recording the internal transactions of the business. In Accounting we record the purchase of assets and goods, the sales of goods, the payments to suppliers, the receipts from suppliers, the payment for expenses, the payment to other creditors, the acquisition of loans, the payment of loan interest and the repayment of loans.
The main objectives of accounting are to provide financial information that is useful in decision-making. It is important to ensure that financial transactions are recorded accurately and timely, and to comply with legal and regulatory requirements.
Accounting involves the following steps:
- Recording financial transactions in day books and ledger accounts using the double entry system.
- Classifying transactions into appropriate categories such as direct costs and indirect costs; variable costs and fixed costs.
- Preparing manufacturing accounts for manufacturing firms.
- The preparation accounting information for voluntary organisations and not-for profit organisations.
- The preparation of accounting information for businesses keeping single entry information.
- The preparation of accounting information in the case of business organisations with missing information.
- Summarising transactions and preparing financial statements in order to assess the performance of the business and showing the financial position of the business at the end of the accounting period.
- Analysing financial statements to draw conclusions about the financial performance of the business.
- Analysing financial statements to draw conclusions about the financial position of the business organisation.
- Drawing up accounting ratios relevant to the particular business and the specific needs of the organisation.
- Interpreting financial information to help stakeholders make informed decisions.
- Accounting information should be drawn in such a way that the information would be relevant to:
- Prospective buyers of the business
- Financial intermediaries and stock brokers
- The owners
- The Inland Revenue Department
- The National Statistics Office
- The Government for policy-making purposes
- Social partners
Accounting information is needed to that firms would seek their financial health. Advice would be given to firms with financial problems. This advice is based on financial information based on accounting information and accounting records.