Here's Why You Need to know Accounting

It's not only accountants who need accounting.Now you must be wondering"If I am not going to be an accountant, why do I need to know accounting..."

But it seems like you don't really have to be an accountant to know about accounting.Accounting possesses far more benefits than being a professional one.

Now to begin with, business.

Business as we are aware that it's a numbers game. Now' if you are planning to be an entrepreneur or start a business, you not only have to know the numbers, but also be able to comprehend and communicate it. Accounting and financial statements are the means of communicating these numbers. If you don't know how to read a financial statement you can't really know your business.

Also, your employees being able to read financial statement might be beneficial to your company as they understand how their actions have the financial impact on the business.

Good financial information does not only helps in making effective business decision but is essential in every pursuits or occupation. And accounting is the system use to provide useful financial information.

WHAT IS ACCOUNTING?

In simple words, accounting consists of three activities- it identifies, records and communicates the economic events of an organisation to interested users.

THE 3 ACTIVITIES

At the beginning of the accounting process it requires a company to identify the economic events relevant to its business.What are these economic events? Events related to production, distribution, consumption(or usage) and import-export of goods or services.

Examples include,sale of chips by pepsico, payment of wages to employees, provision of telephone services.

Once the company identifies economic events the next step is to record these events.Recording consist of keeping a systematic and chronological diary of events and therefore it provides history of financial events.

Next step is to communicate the collected data to interested users (who are these interested users) and to do so we use what we call financial statements.

to be able to communicate the data one must have the ability to analyse and interpret the reported information.

Analysis involves use of ratios, percentage, graphs,charts to highlight significant financial trends and relationships.

One should also understand that accounting process includes bookkeeping function. Bookkeeping usually involves only the recording of economic events. It is therefore just one part of the accounting process.In total accounting invovles the entire process of identifying, recording and communicating.

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DEBIT and CREDIT PROCEDURES/ How to record debits and credits for different accounts

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Financial Accounting

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