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What is Accounting?
Accounting is defined as the as the art of recording, categorizing, and then summarizing in a noteworthy manner in terms of transactions, money and events which are of financial character, and understanding the results thereof.
The accounting is thousands of years old and the earliest accounting reports were found more than 7,000 years back in Mesopotamia. At that time the people relied on the primitive accounting process to record the growth of their herds and crops and. With the advancement of business accounting is also evolving and improving day by day.
Earlier accounting mainly acted as the memory of the businessperson and the in that time audience for the account was the record keeper or the proprietor alone. But with the growing development of joint stock companies produced larger number of audiences for accounts, because investors without firsthand acquaintance of their operations relied on accounts to provide the essential information. The development resulted in a split of accounting systems for internal accounting or management accounting and external also known as financial accounting.
Nowadays, accounting is called as the language of business since it is the method/approach for reporting financial information about a business entity to several different groups of natives. Accounting that concerns with the reporting to people within the business entity is called as the management accounting. It is basically used to supply information to managers, employees, owner-managers or auditors etc. This type of accounting is chiefly concerned with providing a foundation for making management or other operating decisions or choices. On the other hand accounting that provides information to people exterior to the business entity is called financial accounting. This type of accounting provides information to present, prospective and potential shareholders as well as creditors such as vendors or banks, financial analysts, economists and various government agencies. Since these consumers or clients have different needs and requirements, and the presentation of financial accounts is extremely prepared, planned, structured and subject to many more rules than management accounting. And this body of rules that administers financial accounting in a specified jurisdiction is called Generally Accepted Accounting Principles abbreviated as GAAP.
Accounting is all about a sequence of steps which are to be executed properly. They are mainly recording, then summarizing, reporting, and finally analyzing the financial transactions. Recording includes documenting the revenues and entering purchases and expenditures. Summarizing transactions in a conventional accounting system is a tiresome procedure. Next task is to generate reports to gratify managerial, investing, governmental or banking needs. Based on a commonly acknowledged standard, the reports are commanding tools to help the business owner, banker, accountant, or investor analyze the outcomes of their operations.
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