Introduction to Accounting
Accounting is the process of collecting, recording, summarising and communicating financial information to its users for correct decision making. Inputs for accounting are financial transactions measured in monetary terms. Accounting is an art as well as science. In accounting, each and every transaction is recorded in terms of money only, to make it meaningful. Accounting Cycle starts with the recording of transactions in the Journal or Subsidiary books and after passing through the Ledger and Trial Balance, helps in the preparation of Final Accounts. Book keeping is a part of accounting and mainly concerned with recording of financial data. However, accounting is wider concept than book keeping and starts where book keeping ends. Book-keeping is the primary stage and is the basis for accounting.
Cost accounting ascertains total and per unit cost of goods manufactured or services rendered by the firm. Management accounting presents the information relating to funds, costs & profits using techniques like ratio analysis, budgets, etc., to help the management in decision making. Social responsibility accounting is the process of identifying, measuring and communicating the contribution of a business towards society, which includes employment to under-privileged, environmental contribution, etc. Users of accounting information may be classified as internal users and external users. Internal users include owners, management etc. External users include Banks and financial institutions, potential investors, creditors, etc. Advantages of accounting are it gives financial information about the business, prevention and detection of errors and frauds, etc. Limitations of accounting are that sometimes it gives inaccurate results, assets are not shown at realisable value, etc. Qualitative characteristics of accounting information include reliability, understandability, relevance and understandability. Important accounting terms are business transactions, expenses, incomes, profit, loss, purchases, liabilities, assets, inventory, etc.