Meaning of Accounting:
“Accounting is the art of recording, classifying, and summarising 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.”
Accounting is “the language of business.” That definition has always been somewhat too abstract for my tastes. That said, all those professors are right.
At its most fundamental level, accounting is the system of tracking the income, expenses, assets, and debts of a business. When looked at with a trained eye, a business’s accounting records truly tell the story of the business.
The primary objective of accounting is to provide useful and reliable financial information about an entity’s financial performance and position to help stakeholders make decisions. The information generated through accounting can be used to evaluate a business’s profitability, liquidity, solvency, and overall financial health.
The key functions of accounting include:
- Recording financial transactions: Accounting involves recording and tracking all financial transactions, such as sales, purchases, payments, and receipts, to create a record of an entity’s financial activities.
- Classifying financial transactions: The recorded financial transactions are classified and organized into meaningful categories, such as assets, liabilities, equity, revenue, and expenses.
- Summarizing financial transactions: Accounting involves summarizing financial transactions into financial statements, such as balance sheets, income statements, and cash flow statements, to provide a clear picture of the entity’s financial performance and position.
- Interpreting financial transactions: The financial statements generated through accounting are interpreted and analyzed to help stakeholders make informed decisions about the entity’s financial health and future prospects.
In summary, accounting plays a crucial role in helping businesses and organizations manage their finances and make informed decisions.
