Characteristics Of Accounting Process

ACCOUNTING AND ITS PROCESS

What is accounting?

Accounting has been described as the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least, of a financial character, and interpreting the results thereof.

Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions, in making reasoned choices among alternative courses of action.

Features of accounting process

The following are the features of accounting process. The given features can also be termed as accounting process-

(1) Identifying the transactions: a transaction

First, they are recorded in journal. Then, secondly, the transactions recorded in journal are classified and all transactions belonging to one category are grouped at one place. This is done by means of opening accounts in a separate book called ledger. For example, rent paid at the end of each month to landlord for business premise is classified under rent account.

(4) Summarization: the transactions, thus, recorded are summarized at the end of a certain period, usually once in twelve months. This is done by preparing financial statements, viz., profit and loss account and a balance sheet. These two financial statements signify and indicate the financial position of the business.

(5) Analysis and interpretation: the financial statements are analyzed further and interpreted with the help of ratios and percentages. The accounting information is then, conveyed or communicated to the interested parties in the form of reports. Owners, management, creditors and other interested parties use them for

The classification of those is as under-

Classification of Accounts

The following three classes of accounts are maintained for recording the transactions of a business:

(a) Personal accounts: it records the dealings of a trader with persons or firms. A separate account is opened for each such person or firm for recording transactions. The account of each person or firm is debited with any benefit such person or firm receives and is credited with any benefit such person or firm imparts.

(b) Real or property accounts: it record dealings in or with property, assets or possessions. The real accounts represent items which are more or less permanent. A separate account is kept for each class of property or possession such as furniture, cash, equipment, stock of goods, machinery etc. so that by recording therein particulars of each such asset received or given away, the business man can find out the value of each asset on hand on any particular date. When any asset is received, the amount is entered on the debit side and when the asset being given away, that asset is credited.

Real accounts can take the following two