What is Accounting? Meaning, objectives, process, and branches of Accounting
Introduction to Accounting: Meaning, objectives, process, and branches of Accounting
According to the American Institute of Certified Public Accountants (Year 1961), accounting is the “art of
recording, classifying and summarizing in a significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting the result thereof”.
measuring and communicating economic information to permit informed judgments and decisions by the users
of accounting”.
Objectives of Accounting
Process of Accounting(also known as accounting cycle)
(a) Identifying the Transactions:
they are ‘transactions’.
transactions.
(b) Recording transaction in the Journal:
in the books of original entry i.e., Journal after identifying the Debit and the Credit element.
(c) Posting to Ledger: (classifying and Summarizing)
accounts of the ledger.
(d) Drafting of Unadjusted Trial Balance:
to check whether there is any error during the recording stage. This stage is, however, not mandatory.
(e) Passing of adjustment entries:
up the fifth step in the cycle.
(f) Drafting of Adjusted Trial Balance:
be prepared. This happens to be the last step before the preparation of the financial statements.
(g) Closing of books:
referred to as “zeroed out”) at the end of every accounting period.
(h) Drafting the Financial Statements:
prepared with the closing balances of the nominal accounts, while the balances of real and personal accounts
get reflected in the Balance Sheet. Financial statements are prepared in the following order: Income Statement,
Statement of Retained Earnings, Balance Sheet and Statement of Cash Flows.
REAL ME SIRF YE STEPS LIKHNA HAI
STEP 1 TRANSACTIONS
STEP 2] RECORDING ; JOURNAL
Significance of Accounting
Significance of Accounting
- Helps in Decisions: Provides data to make better financial decisions.
- Builds Trust: Shows clear and honest financial information.
- Measures Success: Checks if the business is profitable or not.
- Follows Laws: Keeps everything legal and organized.
- Manages Resources: Tracks money and assets to use them wisely.
- Calculates Taxes: Ensures correct tax payments.
- Prepares for Audits: Makes financial reviews easier.
Limitations of Accounting
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Objectives of Accounting
- Keep Records: To write down all financial transactions.
- Find Profit or Loss: To check how much money is earned or lost.
- Know Financial Position: To see the overall health of the business.
- Follow Rules: To meet legal requirements.
- Share Information: To give financial data to investors, creditors, and others.
- Plan Ahead: To help in planning and making business decisions.
- Protect Assets: To keep track of and safeguard business property.
Branches of accounting
Let’s talk about each of them in details
1. Financial Accounting:
Financial accounting deals with the recording and classifying of a company’s financial transactions, as well as preparing and presenting financial statements for internal and external stakeholders.
While preparing financial statements, strict compliance with generally accepted accounting principles or GAAP needs to be observed. Financial accounting focuses on the analysis of historical data.
2. Management accounting:
Also called managerial accounting, management accounting primarily provides information for use by internal users, that is, the management of the company. Any information used for managerial decision-making forms part of management accounting. This branch of accounting may not strictly comply with GAAP.
Management accounting comprises budgeting and forecasting, cost analysis, financial analysis, evaluation of business decisions and other such areas.
3. Cost Accounting:
Cost accounting is sometimes considered a subset of management accounting. It refers to the recording, presentation and analysis of costs related to manufacturing. This branch of accounting is extremely useful for manufacturing businesses because they typically have very complicated costing processes.
Cost accounting uses various costing techniques, standards and principles that help companies to develop budgets for controlling costs and be cost-effective.
