Accounting is very much connected with our personal lives in so far as it is in respect of every business. We all with intent or unknowingly generate accounting ideas in a way when we plan what we will do with money. We need to plan how much money will be spent whilst how much of it will be kept back.
Being known as “The Language of business”, accounting is the basic need of a business organization to find out where it stands. Financial Accounting is of great essence to provide the basis for planning and budgeting while dealing with measurement of economic activities and communicating financial information to the users for decision making. It is also meant for protecting the properties of business and communicating the results obtained from the financial statements to the intended parties like share holders, debtors, creditors, and investors while meeting the legal requirements. Accounting is included in those fields that are growing faster in this era. It is dynamic at the present time and meets the growing demands of trade, commerce and industry. It is appropriate to mention here that the advent of industrial revolution and technological advancements have given rise to widen more business prospects at the same time as bringing about change in the domain of accounting by which it has now begun to be known as a tool of management for planning and controlling process. Thus, it can be rightly said, in the present day and age, no economic activity can be carried out successfully with no thought of accounting.
According to American accounting association, accounting has been defined as, “The process of identifying, measuring, and communicating information to permit judgment and decision by the users.” Yet another definition of American Institute of Certified Public Accountants (AICPA) is that “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.”
Accounting entails recording, classifying and summarizing of business transactions.
It is a process of identification, measurement and communication of economic information involving four interconnected phases. They are outlined herein: At the outset, the first phase is meant to record the economic events or transactions -depending upon their occurrences, chronologically in the books of accounts - called journals. This process is known as journalizing. Next comes the phase of ledger-posting: It is the process by which all the transactions are synthesized account-wise so that the accumulated balance of each of those accounts can be determined. The process of ledger posting is vitally important as it helps in ascertaining the net effect of various transactions during a given period. The subsequent stage is preparing the trial balance which involves the arrangement of all ledger accounts having been aggregated into debit and credit balances. This activity enables to check and confirm whether the total of debits is equal to that of credits. Finally, comes the phase of preparing financial statements. This phase is meant for finalization of accounts by measuring profit & loss account and preparing Balance Sheet- at the end of accounting period.
Every business needs to have two prime objectives, such as, to earn profit and to remain solvent and the information in relation to these objectives while ensuring whether they are being accomplished is provided by accounting. Accounting is important in the sense that it enables a business house to maintain complete and orderly prepared records of economic events by way of preparing books while facilitating the information for various purposes. Furthermore it helps to ascertain the net results in terms of profit or loss (Income Statement) and providing the information about financial position of the business (Balance Sheet) to the owners of a business relating to what the entity owns in the form of assets and what it owes in the form of liabilities at a particular point of time. Accounting information is valuable to the concerned managers too so as to ensure whether the business entity is being directed as it should be, and simultaneously it is a means to provide the information to the investors to find out the future prospects of business. It is also useful for the employees and customers in order to know the condition of the business entity.
Accounting is the basis and of a great assistance to management for planning, controlling and decision making process. It is with the help of accounting information that the performance of an entity can be appraised, at the same time as, its methodical records make possible to eliminate the frauds and the thefts. Furthermore, being concerned primarily with the creation of financial information for its users, accounting provides useful information for ascertaining the effectiveness and efficiency of a business. Hence, accounting is must for every business. Exclusive of accounting leads to create chaos and discrepancies in business transactions.
Last but not least, accounting ought to be there for a business to run with accuracy, efficiency and effectiveness in terms of overall economic activities and their results. Accounting helps the management in planning and decision making process. There is no replacement of sincere and talented accountants, nor of their capabilities, nor of their diligence because their services offered in keeping track of every single one economic event while protecting entire business properties are so strong and efficient that the need of even highly paid bodyguards of businessmen is eclipsed. As it goes in the words of Elvis Presley, “I don't have any use for bodyguards, but I do have a specific use for two highly trained certified public accountants.”
Generally, the users of accounting information in the society can be classified into two categories, which include the internal users and external users. Internal users refer to the people in the organization producing the accounting reports while the external users are the people, institutions and entities outside the organization’s boundaries who use the information for the purpose of decision-making..
The performance appraisal is the process of assessing employee performance by way of comparing present performance with already established standards which have been already communicated to employees, subsequently providing feedback to employees about their performance level for the purpose of improving their performance as needed by the organisation..
Subsidiary books could be thought of as books of prime entry where transactions of a particular category are noted. Put simply, to avoid wasting time and energy, the transactions which are of similar character are recorded in separate books, they are called subsidiary books or subdivision of journal.