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An Explanation on meaning of Accounting
It is very common in human society that when any person starts a business, he/she wants to record all the financial data in written formats either using pen and paper or digital/electronic mode for proper future planning of his/her business.
When the record keeping procedure follows a systematic and chronological order which can be easily used by the business owners/users,that systematic procedure is termed as 'Accounting'.
The American Institute of Certified Public Accountants(AICPA) states/explains/defines that "Accounting is an 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 results thereof'".
The term "Accounting" can be explained by the following way for an easy understanding.
In the field of Accounting,mainly three sub-fields/branches are taken into consideration.
Financial Accounting
Cost Accounting
Management Accounting
Financial Accounting:
Financial Accounting is an Accounting process, which is aimed to know the Profit and Loss and Financial Position of a Business at the end of a particular period.
Explanation :
Financial Accounting is an art and technique of
Recording
Classifying
Summarizing
Interpreting
Communicating the Results
of Business Transaction and Events in a systematic and orderly manner, which are at least of a financial character and measurable by the unit of money.
More details on Art and Technique of Financial Accounting
Recording Phase
Preparation of documents like Money Receipt/Credit Voucher, Payment/Debit Voucher,Purchase and Sales Invoice etc.
Recording/Posting/Writing the transactions into Journal Book/Journal Register/Journal Proper/Books of First Entry.
Classifying Phase
Posting of Recorded or journalized transactions into their respective Ledger Accounts.
Summarizing Phase
Preparation of Trial Balance, Manufacturing, Trading, Profit & Loss Account and Balance Sheet etc.
This phase is popularly known as Preparation of Final Account.
Interpreting Phase
Preparation of Financial Reports, Profit & Loss or Income Statement, Balance Sheet, Cash Flow and Fund Flow Statement showing a comparison with past years profitability, financial strength with a meaningful insights including estimation for future year profitability and financial strength.
Communicating the Results Phase
Presentation of Summarized and Interpreted data in the form of Manufacturing, Trading, Profit & Loss Account and Balance Sheet etc. to the Internal and External users of Accounting.
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