What is AccountingSeptember 9, 2021 2021-09-09 21:25
What is Accounting
What is Accounting
In this article, I am going to explain to you guys what is Financial accounting, accounting cycle, history of accounting,
Accounting concepts and Golden rules of accounting.
So first of all, I have to start that What is ACCOUNTING?
The basic definition of accounting is:
Financial Accounting includes recording, summarizing, reporting, and analyzing financial data.
In simple words, financial accounting is a branch in which involves a process of recording, sum up transactions resulting from business operations over a period of time.
The two primary functions of financial accounting are to measure business activities and to communicate information about investors’ creditors for the decision-making process.
Accounting cycle: have 4 steps include:
Recording: you should record transactions in General ledgers and Day Books.
Classifying: transactions posted in their particular accounts according to their nature.(grouping) in general
ledgers/ nominal ledger.
Summarizing: An internal check of mathematical accuracy of double entry. (Re-checking)
Interpreting: In this step, you should plan your future and decision-making process.
History of Accounting :
The history of financial accounting came in 1949 when the father of modern accounting is “ Italian Luca Pacioli” published the first accounting textbook, called Summa. This book detailed the double-entry bookkeeping system. One can never understand a subject unless they know where it came from. So I explained to you people a short history of accounting. Now I’m going to share with you different accounting concepts.
Accounting Concepts includes:
Duality concept: This means that every transaction in business should have a double effect on the bookkeeping system for example if you have sold your inventory on cash it means that one of your Assets (cash) increased and another Asset (inventory) decreased. An asset is something valuable or useful.
Separate entity concepts: it refers that a business is separate from its owners. We should record the transaction
separately from its owner otherwise the owner buys something and leaves it on the books of business, when in fact the owner is treating it as a personal possession.
Money measurement concept: states that a business should only record a transaction if it has a monetary value
means expressed in terms of money. For example purchase of machinery etc., it helps in the preparation of financial statements.
Historic Concept: states that all items should be recorded and retained in books at original cost.
Going concern concept: means that business continues its operations in the foreseeable future. We assumed that
business runs for the long term.
Consistency Concept: it implies that similar items should be accounted for using the same accounting policy from one period to another. We must not change our policy without any reason.
Now I’m going to one step further.
Golden rules of accounting: To apply rules of accounting, first of all, you have to ascertain the type of account and then apply these golden rules.
Guys always remember that we can never change rules, they have to apply as they are.
So guys I hope this article has help you a lot. If there is any ambiguity you people can ask.