Blog #26 - Need Of Accounting In Business

Blog - #26 : The Need Of Accounting

 

 

Why Is The Need Of Accounting?

The main aim of any business is to earn profit. For earning profit,, a businessman will either purchase the goods in one market at certain price and sell it in another market at higher price or will convert the raw material into finished products and sell it to the different customers at a price which will give him some percentage of profit on cost of production. But this may not be true for all cases. Sometimes it may happen that the goods purchased or produced may go out of fashion and may be un-sale-able simply because of depression in market or keen competition. He may be able to sell the goods either at a loss or at a very small margin of profit. however, he will anxious at the end of the year to find out whether this goods taken altogether have been sold at a profit or at a loss and what is financial position on a particular date. Moreover in a big business information is required for planning, control, evaluation of performance and decision making. This information can be provided only when business transaction are recorded, classified and summarized properly. In order to achieve these purposes it would be necessary to record business transactions according to a well devised system. Bookkeeping (in elementary stage) and Accounting (in advanced stages) is the name given to such a system.

 

 

What is Bookkeeping?

Bookkeeping is the art and science of recording, classifying and summarizing business transaction in money or money’s worth accurately and systematically so that the businessman may be able to know his profit or loss during a specific period and also his financial position on a particular date. Bookkeeping is thus the recording business transaction in a systematic manner. 

 

 

Words of carter

In the words of carter “bookkeeping is the science and art of correctly recording in books of accounts all those transactions that result in the transfer of money or money’s worth”.

 

 

 

What is Accounting?

The actual record making phase of accounting is usually bookkeeping. However accounting extends far beyond the actual making of records. Accounting is concerned with the use to which these records are put, their analysis and interpretation. An accountant should be concerned with more than record keeping phase. In particulars he should be interested in the relationship between the financial results and the events which have created them. He should be studying the various alternatives open to firm and be using his accounting experience in order to aid the management to select the best plan of action for the firm. The owners and managers of a firm will need some accounting knowledge in order that they may understand what the accountant is telling them. Investors and others will need accounting knowledge in order that they may read understand the financial statements issued by the firm and adjust their relationships with the firm accordingly. Thus accounting is a wider term and includes the recording, classifying the summarizing of business transactions in the term of money, the preparations of financial reports, the analysis and interpretations of these reports for the information and guidance of management. 

 

 

What is purpose of accounting?

The main purpose of accounting is to ascertain profit or loss during a specified period, to shoe financial position of business on a particular date and to have control over the firm’s property. Such as accounting records are required to be maintained to measure the income of the business and communicate the information s o that it may be used by managers, owners and other parties. Accounting is discipline which records, classifies, summarizes and interprets financial information about the activities of a concern so that the intelligent decisions can be made out of them.

 

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