Contents:

 Meaning of Accounting
 Need of Accounting
 Scope of Accounting
 Accounting Cycle
Meaning of Accounting:

Accounting is the systematic and comprehensive

recording of financial transactions pertaining to a
business. Accounting also refers to the process of summarizing,
analyzing and reporting these transactions to oversight agencies,
regulators and tax collection entities. The financial statements that
summarize a large company's operations, financial position
and cash flows over a particular period are a concise summary of
hundreds of thousands of financial transactions it may have entered
into over this period.

Definition of Accounting:

Accounting is the process of systematically

recording, measuring, and communicating
information about financial transactions.

Accounting can be controversial, in that accounting

rules and methods are sometimes subject to
interpretation or can appear to distort a company's
true performance. This is another important reason
that effective leaders and managers must thoroughly
understand the accounting impact of their decisions.
Need of Accounting:
Accounting is a service activity. It is important as it provides quantitative information of
financial nature to various stakeholders which is intended to be used in making economic
decision. These stakeholders include investors, management, government, suppliers, financiers,
regulators etc. Business accounting help in making a number of short term and long term
business decisions which helps an enterprise to grow as well as penetrate in market. The three
major statements which is generated by Business accounting system are as follows:

1. Profit & Loss Account (Income Statement) –

Income statement shows the net income generated/net loss incurred by an enterprise
during a particular accounting period.

2. Balance Sheet or Statement of financial position –

Balance sheet statement shows the financial position of an enterprise as on particular

date. Closing balance of various assets and liabilities are reported in balance sheet. The
excess of assets over liabilities is capital.

3. Cash Flow Statement –

Cash Flow Statement shows how changes in balance sheet and income statement which
affect cash and cash equivalent. Basically it shows cash inflows and outflows among
operating, investing and financial activities of an enterprise.

These three statements when combined together forms Financial Statements . The financial
statements are required by all the stakeholders.
Importance of Business Accounting
Accounting is a service activity. It is important as it provides quantitative information of
financial nature to various stakeholders which is intended to be used in making economic
decision. These stakeholders include investors, management, government, suppliers, financiers,
regulators etc. Business accounting help in making a number of short term and long term
business decisions which helps an enterprise to grow as well as penetrate in market. The three
major statements which is generated by Business accounting system are as follows:

1. Profit & Loss Account (Income Statement) –

Income statement shows the net income generated/net loss incurred by an enterprise
during a particular accounting period.

2. Balance Sheet or Statement of financial position –

Balance sheet statement shows the financial position of an enterprise as on particular

date. Closing balance of various assets and liabilities are reported in balance sheet. The
excess of assets over liabilities is capital.

3. Cash Flow Statement –

Cash Flow Statement shows how changes in balance sheet and income statement which
affect cash and cash equivalent. Basically it shows cash inflows and outflows among
operating, investing and financial activities of an enterprise.

These three statements when combined together forms Financial Statements . The financial
statements are required by all the stakeholders.
In today’s dynamic and complex business environment it is very important to keep our
accounting records clean and up to date. Proper accounting is important to any enterprise
because of the following reason –

1. Helps in evaluating the performance of business –

As discussed above, the accounting records reflects the results of operations as well as
statement of financial position. Also various balance sheet and profit & loss accounts
ratios are calculated which help user of financial statements to analyze the performance
of an entity. For example debt equity ratio, Current ratio, Turnover ratio etc. Also we can
compare previous period accounting data with current period as well as budgeted figures
for variance analysis.

2. Helps to manage and monitor cash flow –

The working capital and cash requirement of an enterprise can be duly taken care by
proper accounting system.

3. Helps business to be statutory compliant –

Proper business accounting ensures timely recording our liabilities which needs to be
paid within the prescribed time line. This includes provident fund, pension fund, VAT,
sales tax, Income tax. Timely payment of liabilities helps enterprises to be statutory
compliant.

4. Helps to create budget and future projections –

Accounting data helps an enterprise to prepare budget and forecast for future period.
Business trends are projected based on past data produced by accounting system.

5. Helps in filing financial statements with regulators, stock exchanges and filing of tax
returns –

Enterprises are required to file the financial statements with ROC. In case of listed
entities the same is required to be filed with stock exchanges as well. For both indirect
and direct tax filing purposes, financial statements and other financial information are
required.

6. Other information –

The accounting system provides a number of qualitative and quantitative customized

reports which are required in day to day business activities.

For the above we can conclude that accounting is very important for any enterprises whether
listed or unlisted, profit oriented or not for profit, Government or private.
Scopes of accounting

1. Business

Accounting is widely applicable in the business sector. Today, in the modern world, most of the people
are engaged in business sector and all businessmen follow Generally Accepted Accounting Principle
(GAAP) to find out profit, loss and financial position of business firm.

2. Government organizations

Though, Government organizations do not follow Generally Accepted Accounting Principle (GAAP), its
keep systematic records of all transactions in order to find the position of public fund.

3. Non-Government organizations

Non-government and service organizations such as NGOS, INGOs, Red Cross Society, SOS etc which plays
a vital role in the development of nation also uses accounting. The accounting system used in these
organizations are called fund accounting.

4. Individuals

Individuals also perform economic activities to earn their livelihood. They also perform some
form of accounting to draw financial information for making personal economic decision.
Accounting cycle
Steps of the Accounting Cycle

1. Analyze and measure transactions.

1. All purchases (no matter how small).

2. Anything that's measurable, relevant, or reliable.

3. All events:

2. Record transactions in the journal.

Each journal entry consists of four parts:

1. The accounts and amounts to be debited.

2. The accounts and amounts to be credited.
3. The date of transaction.
4. A transaction explanation.

3. Post information from the journal to the ledger.

4. Prepare an unadjusted trial balance.

5. Preparing adjusting entries.

6. Prepare an adjusted trial balance.

7. Prepare financial statements.

8. Prepare closing entries.

9. Prepare a post-closing trial balance.

Now that your company has performed a complete accounting cycle.

Conclusion
From the above we can conclude that accounting not only helps an
enterprise to conduct its day to day activities smoothly but also helps in
its future growth. At the same time financial statements produced by
various accounting systems are used by multiple stakeholders to take
economic decisions. Proper reporting and accounting practices helps in
maintaining investors’ confidence and brings economic growth as well.