Monthly Archives: May 2016

Basic of Accounting

Basics of Accounting:

Recording, analyzing and compiling business affairs and illustrating results is accounting. Accounting is actually, a system of information and its purpose is to describe, compile, measure and relates data about commercial units to those with concern in the units. It allows reasoning and selection to information users. We can say accounting as a business language as it deals with profit and loss of business. History of present accounting is related to 15th century when Luca Pacioli in 1494 stated the terms “Debits” & “Credits”, both these terms are the basis of today’s accounting. Equation for accounting can be written as:

Assets = Liabilities + Capital

As we can see from above equation that sum of liabilities and business owner’s capital are equal to assets for any business. In simple we can say that these are liabilities and capital that provide funding for the purchase of assets for any company. This is the basic equation of accounting.


There are various branches of accounting that are:

  • Management branch
  • Auditing branch
  • Tax branch
  • Fund branch
  • Forensic branch

There are following functions of accounting:

Purpose of accounting:

There are following objectives of accounting which are very important to keep business running and are also responsible for the best future of any business.

To keep analytical records:

Through accounting we keep analytical record of financial dealings. There are two purpose of accounting here, the first purpose is that we collect analytical data for a specific business and then record it analytically to acquire accurate and beneficial results for business reports. This show that accounting is of great help in keeping analytical records and resolving fruitful results in our business dealings.

To determine business efficiency:

Accounting also helps us we can determine rise and fall that occurred in a particular accounting duration. We can also calculate the loss and the profit of a specific firm through accounts such as profit & loss and trading account. So in business accounting is the key to success as due its calculation one can easily manage the business in a way which is beneficial for business owner and vice versa.

To check economic status of the firm or business:

Accounting is very important to determine the economic status of any business by taking into consideration the outcome, investment and other factors influencing that business. For this purpose proper balance sheet is prepared which shows the economic status of a specific business. This balance sheet gives us information about the cost of belongings, the nature and rate of accountability. Through this balance sheet business owners can take steps toward the success of business

To aid in making choice:

To take proper decision for future of a company or a firm one must have known accurate economic status and value of projects of the company. In this regard,  accounting helps in making right decisions for the best future of the company. Thus accounting tells and guides us to proper direction for future and making a business more profitable and also saves from loss if proper steps have taken by studying the calculated reports of accounting.

To accomplishment of law:

There are different senatorial acts in different countries for companies, societies and trusts, acts are even different for different types of firms or trusts within same country. Each and every company has to follow these parliamentary acts and accounting is responsible for accomplishment of these laws on firms and trusts. There are also different taxation laws for each type of business and accounting helps us to keep business running by accomplishing these laws in a proper way.