The purpose of accounting is to record each activity and related transactions in the organization. It is a system of recording, summarizing, and analyzing the company’s financial transactions. Providing this information effectively is vital to the success of any business. It is the task of the accountant to provide financial information from time to time.
Financial information is used by internal users such as management, managers, and related employees and external users such as banks, investors, government agencies, financial analysts, etc. Thus users depend on the details and data prepared by the accountants to answer various questions such as:- Is the company making a profit? Does the company have sufficient cash to meet day-to-day requirements? How much debt does the company have? How much is owed to creditors and debtors? Answers to many questions etc. are obtained through accounting.
Accounting is a process of identifying, recording, summarizing, and reporting economic information to management in the form of financial statements. Bookkeeping is required in every organization to prepare financial statements. These books are made through a computerized accounting system in a company, and in some places accounting is done through a software application. In computerized accounting, work is done through automation method which saves time. Every business has some kind of accounting system, this accounting system can be complex or very simple, but the value of any accounting system lies in the accounting system that the system provides.
Accounting provides the foundation for making short-term and long-term decisions on investments, sales, and returns of any company or organization. That’s why there is an accounting department in a company or organization, which works to provide the budget for activities like investment, sales, details, etc., or other business activities of the organization.
Exploring the Concepts of Accounting
Accounting concepts are the basic terms, assumptions, and conditions that define the parameters and constraints within which accounting operates. In other words, accounting concepts are generally accepted accounting principles, which form the fundamental basis for the preparation of a universal form of consistent financial statements.
An accountant provides specific and important information related to the financial activities of the organization as part of the accounting process, which is used by company management and financial analysts. These reports are generally prepared on a quarterly basis. To maintain the uniformity of this information, GAAP (Generally Accepted Accounting Principles) is followed in the accounting field of all types of small, medium, and large organizations.
The following accounting principles are used to prepare the company’s accounts under GAAP:
• Entity Concept (Business Entity Concept) • Dual Aspect Concept • Accounting Period Concept