Introduction to the Accounting

ACCOUNTING

Accounting  is a process of identifying ,recording, summarizing, and reporting economic information to decision makers in the form of financial statements.

Features :-

Accounting helps in decision making by showing where  and when money has been spent , by evaluating performance, and by showing the implications of choosing one plan instead of another.

Who Uses the Accounting information ?

(i)   Individuals

(ii)  Businesses

(iii) Investors and creditors

(iv) Government regulatory agencies

(v)  Non- Profit Organizations

(vi) Taxing authorities 

How and where they use accounting information?

.  Investors, Creditors, Regulators, customer and competitors are the external users. 

. Owners, managers and employees are the internal users.

Accounting Period

An accounting period is a span of time covered by a set of financial statements. This period defines the time range over which business transactions are accumulated into financial statements, and is needed by investors so that they can compare the results of successive time periods. For internal financial reporting  ,an accounting period is generally considered to be one month. A few firms compile financial information in four week increments, so that they 13 accounting periods per year. 

Now coming to the cycle of accounting, So, What is accounting cycle?

So, Accounting cycle is a complete sequence of transaction, it begins with journal, then later recorded in a ledger, arriving at a balance in the ledger, moving to prepare trial balance and finally preparation of financial statements which is-- Trading and Profit and loss account (Income Statement ) and Balance sheet ( position Statement).

Accounting Cycle Steps

Journalising- It records the transactions in the journal. Sum of debit and credit should always be equal in the journal.

 Posting -    Transfers the transaction in respective accounts opened in the ledger.

Balancing - Arrive at the difference between total of debit and credit column in each account in the ledger.  

Trial Balance- Prepare a list showing the balance of each and every account. Total of debits should  be equal to the total of credits. Otherwise, there is no arithmetical accuracy.

Trading and Profit and loss Account- Purpose is to ascertain the profit or loss for the accounting period.

Balance sheet- Purpose is to ascertain the financial position  at the end of the accounting period.