Understanding the Essentials of Accounting

A great deal of people perceives Accounting as a difficult subject. What they do not know is that Accounting is much easier than Algebra or Mathematics. It only involves the basic operations of Multiplication, Division, Addition, and Subtraction. It is simply a compounding of English and Arithmetic.

Just like learning English Grammar and Literature, you try to understand what it is all about. There are rules to follow, such as the rules on debit and credit, the format of an Income Statement and Balance Sheet.

Accounting is the language of business and like any language; it can never express ideas with precision and clarity. Many of the words used in accounting mean almost, but not quite the same things as they mean in everyday life. You must learn to think of words in their accounting rather than their popular meaning.

In any language there are some principles that are definite and some others that are not definite or a matter of opinion or style. As language changes to meet the needs of communication in society, so accounting changes to meet the needs of business.

Business is a field of endeavor. We engage in business for the purpose of attaining profit. It is through bookkeeping or accounting that we can measure the profitability of the business. Accounting is a tool for decision making. As a useful tool, it responds to the changing needs of data-users and the economic environment.

Some business fails because there is no system by which they can better manage the business. By proper recordings of business transactions, they can determine business progress. Accounting involves the systematic recognition, measurement, reporting, and interpretation of data that are related to the financial activities of a business. Accounting records everything about the business and comes up with a report that gives the result of the business operations.

Everyday, a manager is faced with situations and questions that require informed decisions. How will a manager know whether the bed linens online department is earning profits or incurring losses? How will he compare whether this year's performance is better or worse than last year's? For a manager to be effective, decision-making skills are needed. Unless there is available financial information that will be the basis of his decisions, his skills are useless.

Bookkeeping is part of the wider field of accounting. It is the clerical side of accounting which involves the repetitive mechanical recording and classifying procedures related to the business activities of a business. To become an accountant, several years of study, experience and maturity are needed.

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