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Fundamentals of Accountancy Business and Management 1
Fundamentals of Accountancy Business and Management 1
Measured
Data
Processed
Events
Flow of Accounting
Information
Nature of Accounting
• Accounting is a process. It is composed of multiple steps that lead to a
common goal, it performs the functions of identifying, recording and
communicating economic events with the end goal of providing
information to internal and external parties.
• Accounting is an art. It refers to a way of performing something; it’s an
art of recording classifying, summarizing and finalizing data. A
combination of techniques and its application requires applied skill and
expertise.
• Accounting deals with financial information and transactions. It deals
only with quantifiable financial transaction. The only events identified by
the accountant, recorded in the books and communicated to different
parties.
• Accounting is a means and not an end. It is a tool to achieve specific
objectives. It is not the objective itself.
• Accounting is an information system. It is recognized and characterized
as storehouse information. As a service function, it collects processes and
communicates financial information of any entity.
Accounting as an Art
• defined as the art of analyzing financial
transaction and economic events, recording
them, classifying them as to accounts and
summarizing them and followed by reporting
and interpreting the results.
Analyzing – the first step of the accounting
process. The accountant or any person involve in
business finances must look the transactions
entered into, economic events that have taken
place, and determine their effects on the
business. The transactions and events are
generally supported by documentary evidence or
proofs.
Recording - is a routine and process of
writing down business transactions. Business
transactions and events that are quantifiable
or measurable are recorded in the books of
accounts.
The recording maybe done by manually or it
may be encoded with the use of computers
with accounting software like peach tree,
tally and etc., The recording books called
JOURNALS.
These journals are has a different type as
follows:
A.General Journal
B.Special Journal
a. Cash Receipt Books,
b. Cash Disbursement Books
c. Sales Books,
d. Purchase book
Classifying – it refers the process of title. The
journalize transaction and events are classified as in
ledgers. The Ledgers are General Ledgers and
Subsidiary Ledgers. The Subsidiary Ledgers show
the details of those transactions and events.
The process of transferring the same information
from the journal to the ledger is technically known
as posting. Posting of information is usually made at
the end of the month.
Summarizing – a process that involves grouping together the
various accounts referred to the classifying process. the phase
in the accounting process which involves preparation of the
financial statements. Accounts are grouped into Assets,
Liabilities, Owners Equity, Revenue, Cost and expenses.