What, Why and Need of Accounting

Accounting refers to the actual process of preparing and presenting the accounts.

“the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts”.

An accountant is a practitioner of accountancy or accounting.

The word "Accountant" is derived from the French word Compter, which took its origin from the Latin word Computare. The word was formerly written in English as "Accomptant".

Like in comptroller evolved in the 15th century through a blend of the French compte ("an account") and French contreroule "counter-roll, scroll copy", thus who specializes in checking financial ledgers

Why we need

Need and Importance of Accounting

To live we should earn. Earnings comes in many ways. Salary, business income, others like bank interest, etc. salary n others is a direct income which we can spend fully, does not need much FA.

For Business income its little tough to say what we earn is fully available for personal exp. For ex. Sales for Rs.100. Is that 100 fully be taken to our home. Is it our real profit? Yes or no? to decide we have to see the expenses we incurred.

We have to see How much we earned. Do we really earn or not. For that we need FA.

 double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint-stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information.^[6] This development resulted in a split of accounting systems for internal (i.e.management accounting) and external (i.e. financial accounting) purposes

To get details of the business transactions have to be recorded in a clear and systematic manner to get answers easily and accurately for the following questions at any time:

1.       To maintain accounting records.

2.       To calculate the result of operations.

3.       To ascertain the financial position.

4.       To communicate the information to users.

5.       Taxation

6.       Management decision-making,

7.       Legal requirements

Book-keeping is recording of business transactions, only those transactions related to business which can be expressed in terms of money arerecorded.

Activities of book-keeping are journal, posting to the ledger and balancing of accounts (TB)

Accounting steps:

Journal, posting to the ledger, Bank Reconciliation Statement, Trial Balance and Rectification of Errors, Capital and Revenue Transactions, Final Accounts.