IMPORTANCE AND PHASES OF ACCOUNTING
WHY WE USE ACCOUNTING:-
In this world, from born to die a man has lot of needs of things, these needs may include physical, emotional and entertainment needs. To fulfill these needs businessmen perform different types of activities just to satisfy these human needs, when they perform these activities in reward they expect some reasonable earnings.
WHAT IS ACCOUNTING AND IT’S IMPORTANCE:-
When a business man produces something or renders services to satisfy these needs they spend some money. So to check what they earn, they have to record the details of expenses and income in proper ways. If a man does not keeps the records of expenses and incomes which he spend then how he will recognizes what he earns? On the hand if you keep records of all expenses and income you may also manage them in more proper form, you may check what the ratio of expenses is, whether is there any expense which are more than the actual may and if the answer is yes, you may apply some polices and make rules and regulations to control these extra expense and by doing this you may increase your profits. In this way you may utilize your resources in proper ways. These managing of resources may only be done through accounting as you make proper planning.
Accounting is a business language that communicates information. it is also called a business language, it is also important for government agencies, clubs, colleges and other kinds of organizations. Basically it is a responsibility where an accountant answers to the business concerns like owners, creditors, labor unions and Government Agencies.
Accounting is an art where a monetary event or transactions are recorded, classified and summarized in significant manner. Accounting transactions are managed in different four stages or phases.
PHASES OR STAGES OF ACCOUNTING TRANSACTIONS:-
1):- RECORDING:- In this phase accounting transactions are recorded in business books of accounts in chronologically (Date Wise).
2):- CLASSIFYING:- Similar nature transactions are classified and recorded separately e.g. you may pay some traveling expenses during a day but on different times, all the time when you pay this type of expense you record in the head of traveling expenses or you pay courier charges in one day on different times you record them in head of “Postage” here you are recording the same nature expense in proper classified head.
3:- SUMMARIZING:- When you recorded same nature expenses in proper head of account during the whole accounting period, you are in the process of summarizing, e.g. in one month you recorded 20 entries in say “traveling Head” and the total of all these 20 entries are say 1000, and your boss asked what is about the traveling you say that traveling expense occurred 1000 during the month. How you find this? Just from the Summary of the expense.
4):- INTERPRETATION:- To find the true position or result of the business concern all the accounting data and information are analyzed and interpreted. The preparation of profit and loss accounts, Balance sheet along with notes and applying different types of ratios are known as interpretation.
DIFFERENCE BETWEEN BOOK KEEPING AND ACCOUNTANCY:-
BOOK KEEPING:- Recording of monetary transaction in the books of account in proper manner and a business concern from these records can find or ascertain the complete and accurate result is called Book Keeping. In simple way we can say the from RECORDING to SUMMARIZING activities are called book keeping. And the phase of interpretation and designing of accounting system may called accounting.