What is Accounting and How it hepls us!

Definition

Accounting is a systematic process of identifying, classifying, measuring, summarizing and communication of financial data.

All the profit seeking and non-profit seeking business and organizations make use of financial resources to operate. There is a need to show at any point in time the situation of the financial resources, financial performance, any profit or loss and the assets and liabilities of the organization. But how this is summarized and presented to the interested parties.

Accounting comes into action and solves this problem. As stated in definition it is a systematic process, by which financial data is identified, classified, measured, summarize and communicated to the interested parties in a proper manner. To make it more clear every aspect of the definition is explained. Given below you will find all those steps which are include in accounting definition:

Systematic Process.

It means rational, not arbitrary. Accounting did use a defined way to process financial transactions.

Identifying

It means detecting financial transactions.

Classifying

It means differentiating and grouping the financial transactions to their relevant group under defined headings.

Measuring

To allocate correct financial value to all the financial transactions.

Summarizing

To convert all the financial information to a short form so that all the relevant information is provided and irrelevant information is omitted.

Communicating

Presenting financial data to the users, in a meaningful manner.

Financial Statements are the product of Accounting system. And it is only possible through Accounting that the a large number financial transactions are presented in standardized and summarized manner, in the shape of Financial Statement, so that the internal and external users of the financial statements finds the relevant, reliable and easy to understand information for their decisions.