What is accounting?

Introduction of accounting and its importance




Accounting is an activity to maintain proper data or information related to the business operations in an orderly manner. It is the recording phase of accounting. It is also the main part of the business. Without the concept of accounting nobody can find the real profit and loss of the business. No one can find the actual expenses & losses, income & gains, sundry debtors and sundry creditors. To grow up the business one should need some financial support from someone. The person who supports to the business in the form on monetary aspects that person is known as sundry creditor. On the other hand, person who are liable to pay money or give a promise to pay the money to the business that is known as sundry debtor. With the help of accounting, business has also maintained a record of purchase and sale. It is the term that is used in business. Accounting means to maintain the record systematically, properly. It is summarized form of records. With the help of accounts, anyone can judge the financial position of the business. Large-scale industries, as well as small-scale industries, maintain their accounts on a daily basis. It is compulsory for every firm, industries and company as well. Accounting is an art as well as science. In simple words science is always based on causes and effects. Whereas art is the application of knowledge, which are based on theories and rule of accounting.  Apart from this, the main objective of any business is to earn maximum profit with the used of maximum sources that are limited. Every businessman is interested to know at the end of the accounting year, what is the actual profit of the business, he has earned during this period. For this purpose, it would become necessary to maintain the proper record in the proper place, with proper manner and record all the data according to date wise. Such as proper maintenance of books of accounts, it becomes so easy to find any record at the time of need. Moreover, accounting written records is also essential for the following types of information required:


•    How much will be the total earnings during the period.

•    What will be the expenditure during the period like salary, wages, commission, bank charges, purchase, electricity bill, repair and maintenance, rent etc. All are the expenses related to all the business.

•    How much will be the profit or loss

•    How much will be the business capital and liabilities

•    Nature and values of fixed and intangible assets, fixed and current possessed in business

•    Nature and amount of liabilities

•    Customers who owe to the company and the amount in each case.

•    Suppliers to whom the firm has to pay and the amount in respective case.

•    Other facts for filing sales tax or income tax returns.


Accounting vs. Accountancy:


The knowledge of accounting concept, principles, assumptions, conventions, and rules of accounting are the governing factor of accounting.

On the other hand, the following the rules of accounting and record the transaction in books, according to that rule is termed as accountancy.


Accounting Terminology:

The important terminology, which is used very much in accounting language, is very important to discuss here. These terms are frequently used  in accounting.


•    Assets: Assets may be defined as anything, which used to run the business smoothly. Assets may be fixed and intangible, current assets, tangible assets, etc. Fixed assets are as the name suggests those assets that are fixed that cannot change time to time. Building, furniture & fixture, air conditioner are the example of fixed assets. These assets are always fixed for a long period. At business case is a very important part; a business cannot survive without the flow of cash. The nature of cash is current. It may increase or decrease the time to time. So current assets are those assets that are frequently changed. All the assets either fixed or current that can be touched or seen are called tangible assets. Building, furniture & fixtures, cash all are the tangible nature assets. On the other side that assets that cannot be touch or seen, that asset is known as an intangible asset. Goodwill or name of the company like ABC & Sons Pvt. Ltd. are an intangible asset. But what it means. Why is it an intangible asset? The reason is every company or business has some value in the market. At the time of disclosure businessman also charges extra payment for the company’s name. It is a kind of goodwill of the company.


•    Revenue: It is the financial value of any services or products sold to the customers during the period. The Commission receives; interest receives from the bank is revenue for the business.


•    Expenses: Expenses are divided into two category wise direct expenses and another is indirect expense. Wages, carriage inward and outward are direct expenses. These expenses are related directly to sales and purchase. On the other hand, all other expenses except direct are known as indirect expenses as salary, rent, commission paid, repair, etc. all are indirect expenses.


•    Drawing:  The term drawing is used for personal used of business assets by the businessman or the owner of the business.


•    Sundry Creditor: Amount owed by the enterprises on account of the purchase of goods and services with contract obligations known as sundry creditor.


•    Sundry Debtor: is the person from whom amounts are due to product sold in respect of contractual obligations is known as sundry debtor.

•    Gross profit: It is excess money, goods that are traded and services rendered during a period over their cost.


•    Net profit: At the end of the financial year when all expenses are deducted from all incomes, then the balance left is known as net profit. If balance came in a negative form, then it means a loss and in case it is positive then that is net profit.


So to sum up this discussion, accounting is based on some rules and principles, concepts and conventions, proper recording of transactions. It is a systematic way to keep a record with proper manner. It is a way to maintain the records of fixed and intangible assets, record of sundry debtor and creditor, expenses or incomes, profit or loss.