The Role of Accounting

Some people think that accounting is a very technical field. Only professional accountant can understand it. Actually, nearly people practice accounting in a certain form on almost daily activity
Accounting is the art of interpreting, measuring, and describing economic activity. Wheter you are preparing a household budget, preparing your income tax return, or running in the business, you are working with accounting information.
Accounting is often called the language of business. People in business world-owners, managers, bankers, investors all use accounting terms and concepts to describe the resources and the activities of every business, large and small. Accounting provides a framework for looking at past performance, current financial health, and possible future performance. It also provides a framework for comparing the financial performances of different firms.

Financial information about a business is needed by managerial decision makers to help them to plan and control the activities of the organization. Financial information is also needed by outsiders-creditors, investor, and the public-who have supplied money to the business.
The field of accounting is divided into four main ideas: financial accounting, auditing, managerial accounting, and tax accounting. Financial accounting is the branch of accounting that prepares financial reports used by managers and outsiders. The process of reviewing the records used to prepare financial statement is called auditing.

Managerial accounting provides financial information that can be used to evaluate and make decisions about current and future operations. The fourth branch off accounting is tax accounting. It developes tax strategies and prepares tax return.
Independent accoutants who serves organizations and individuals on a fee basis are called private accountant. They may do financial accounting, auditing, managerial accounting, or tax accounting.

The accounting Cycle
the first step in the accounting cycle is to analyse the data collected from many sources. All transactions with a financial impact on the firm must be documented. Next each transaction is ordered in a journal, a listing of financial transactions in chronological order. Then the journal entries are classified into accounts, categories of items that appear in the financial statement, which are records of increases in a specific asset. The accounts are next generally prepared quarterly but may be prepared only at year – end.
The asset are listed in order of their liquidity, the speed with which they can be converted to cash. The most liquid assets come first, and the least liquid are last. Because the cash is the most liquid asset, it is listed on the balance sheet from to lest liquid.

Revenues
Revenues are the money amount of sales plus any other income received from sources like interest, dividends and rents. revenues are determined starting with gross sales, the total discounts and return and allowences from gross sales.

• QUESTION FOR COMPREHENSION

1. What is accounting?
2. What is auditing?
3. What is liquidity?
4. What is financial accounting?
5. What is public accountant?
6. What is Private accountant?
7. What is journal?
8. What is tax accounting?
9. Who does practice accounting in a certain form in an almost daily activity?
10. When are working with accounting concepts?
11. Why is accounting called the language of the business>
12. What are provided by accounting?
13. Why is financial information needed by managerial decision makers?
14. Name the four areas of accounting?
15. Who do public accountant and private accountant do?