What is accounting and who are the user within it?

To answer the question what is accounting, it is the system of information through which business activity, processing data on numerous reports, communication with decision makers can be done. It is a myth that accounting is a special language of business. The language should be understood by the business owners for betterment of the business. Understanding the calculation of income is the main concept of accounting
 
Accounting Required to Whom:

what is accounting

Accounting is a simple calculation of money to the individuals. It facilitates them to find out some cash from the lump sum amount to save every month. Accounting helps to determine the exact amount of expenditure from the salary. Even it is required every time and every footstep. 

Accounting is something special to the business owners. They use the term for setting their goal of business. For calculating the development of the target and for assigning financial adjustments accounting is required by them when they need. Financial statements provide information to the businessmen for betterment of the business and to make decision. On the basis of these statements, they can purchase advanced machines, again they can stop further investment. So accounting helps them to stay away from unnecessary mislaying of the company.

Accounting plays different role to the investors whether they invest more for a particular company or not. The investors can monitor the status of invested money through the financial statements of that particular company. Even they can invest more money in retirement plan rendered by the company or IRA contribution. Knowing the financial statements help to decide which one investment plan has to be picked. A person or a creator can use accounting for evaluating the ability of the business organization for making loan payment by reading financial statement. The individuals and business owners can get the advantages of tax deduction by reading the accounting records.

The Profession on Accounting:

The profession on the basis of accounting is really demanding forever. Every business organization and company requires efficient accountants. In that case CPA and CMA degree is needed for the aspirants to get this glamorous job.   


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Sample of Accounting Equation | MYACCOUNTINGINFO.NET



Accounting equation is the very basic concept of accounting. Without this, it is impossible to understand the higher, more complex topics. Thus, when you are studying accounting equation, it is best to be proficient and fluent with all concepts and variables of this particular topic. 
Accounting Equation

It is easier to understand when you have samples and examples at hand, to work with. Although this equation is basically simple, it is the foundation upon which the whole world of accounting rests.

The equation in itself is simple. It says that the assets are always equal to the liabilities. The liabilities are that of the owner’s and also of the creditors. This equation holds true for every single transaction, without exceptions or conditions.

Explanation of the Accounting Equation

The equation in itself is not very difficult to understand. It says that the total assets equal the total liabilities. As mentioned above, liabilities can be that of the owner’s or of the creditor’s. Thus, it can also be said that the total assets equal the total outside liabilities, along with the total owner’s liabilities. Outside liabilities is another name for creditor’s liabilities. Hence, it can also be said that total assets are equal to total creditor’s equity along with the total owner’s liability. Thus, as a conclusion, it can be said that total asset equal the total creditor’s equity, along with the owner’s capital and the total income from which the total expenses must be reduced.
Total assets = Total creditor’s equity + (owner’s capital + total incomes – total expenses)

Conclusion of the Equation

When you are working out the samples of the accounting equation, it becomes evident that there are some set conclusions and results that you are bound to see. Every single transaction results or concludes in an equal effect to asset and liabilities, plus the capital. The initial balance with which you start is equal and so are the changes that arise from the equation. By the rules of geometry, the equation can also be written as Liabilities = Assets – Capital, as was established in the equation mentioned above, or even Capital = Assets - Liabilities. 

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Periodic Inventory System

The periodic inventory system is mainly used by business that sell relatively inexpensive merchandise and that are not yet using any computerized scanning systems method in analyzing the cost of good sold of the merchandise. A characteristic of the periodic inventory system is that no entries are made to the inventory account as the merchandise was bought and later to be sold. 
Periodic Inventory System
When goods are purchased, separate account should be made, (ex : purchases, purchases discounts, purchases allowances and returns, and transportation in) is used to accumulate data on the net cost of the purchases only its accounting period. However, when the inventory is counted, transaction entries will be made to the inventory account to establish its proper accounting balance. 
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Basic Principles of Accounting

Accounting practices follow certain rules. The set of rules and procedures that constitute acceptable accounting practice at a given time is GAAP, which stands for generally accounting principles. In order to generate information that is useful to the users of financial statements, accountants rely upon the following principles below:
basic principles of accounting


Objectivity Principle - Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. Reliable data are verifiable when they can be confirmed by independent observers. Ideally, accounting records are based on information that flows from activities documented by objective evidence. Without this principle, accounting records would be based on whims and opinions and is therefore subject to disputes.

Historical cost - Principle states that the acquisition of asset should be recorded at its actual cost and not what the management think about of its worth at reporting date Revenue Recognition Principles - in this state revenue is recorded when goods are delivered or the services has been performed or rendered

Adequate Disclosure - its means that all vital accounting information that affect the understanding of accounting firm should be disclosed on the financial statement Materiality -

Materiality - depends on the size and nature of the item judged in the particular circumstances of its exclusion. In deciding whether an item or an aggregate of items is material, the nature and size of the item are classify together. Depending on the status of its nature, either the size of the item could be the determining aspect.

Consistency Principle
- Compnay should use same accounting approach from period to period to meet the compatibility over time within a single enterprise. Nevertheless, changes are permitted if justifiable and disclosed in financial statements.



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Accounting Basics 

What are the Accounting Concepts?

Accounting is the most important function of every size business as it is based on certain accounting concepts and values and is different from book keeping. In fact, accounting is the process of dealing out with the bookkeeping statistics and obtaining some significant information from it.


What are Accounting concepts?


Accounting concepts are a set of wide principles which have been formulated to provide a fundamental outline or agenda for financial reporting. Basically, financial reporting involves certain specialized judgments’ by skilled accountants and these principles and concepts make sure that the users are not deluded by the acceptance of accounting policies and performance which go against the will of the accountancy profession. Therefore, the accountants must consider whether the accounting treatments are reliable with the accounting concepts and principles or not.

Accounting Concepts
Following are the concepts and principles of Accounting

  • Reliability
The information is reliable when the accountant or the user depends upon it to be perfect only if it loyally represents information that it claims to present. Well, certain omissions reduce the dependability of information in the financial statements.

  • Relevance
Information need to be appropriate to the decision making needs of the accountant as it helps the users in forecasting the future trends of the business or to confirm or correct any of the past predictions. 

  • Neutrality
Information contained in the financial reports need to be free from partiality and should reflect a balanced view of the affairs of the organization without challenging to present them in a preferential or special way. It must be neutral without any partiality. 
 
  • Faithful Representation
There needs to be trustworthy in presenting the financial statements with honest transactions which occur all during the period. This accounting concept is known as Farm or Substance over.

  • Prudence
Here there is need of financial statement preparation with the use of professional help in the adoption of accountancy estimates and policies. It requires that the financial accountants must work out a degree of caution in the acceptance of policies and certain approximation of income and assets.

  • Completeness
Depending on the information present in the financial report is achieved only when complete financial information is presented to the concerned business and other financial decisions making needs of the accountant. 

Consequently, information needs to be complete in all respects without any partial view.


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