What is Accounting – Understanding the Basics

Regardless of whether you are learning accountancy for the first time or have been studying it for quite some time, if you do not know what accounting is and the basic terms that are connected with accounting, you will be facing a really tough time to deal with this subject.

First, let me enumerate what accounting exactly is. Accounting occupies a significant part of the business houses. The role played by it lies in helping the interested parties, both the internal as well as the external to take business decisions. Accountancy or accounting refers to the processing, measurement as well as communication of financial information.

We can divide accounting into an array of fields including

• Management accounting
• Financial accounting
• Tax accounting
• Auditing

What is Accounting?

All of you know what accounting is. It is the language of business. Accounting refers to information used for collection, classification and manipulation of financial data for the individuals and organizations. Accounting helps organizations with determination of financial stability. It is the accountants who are responsible for determination of wealth, profitability as well as the liquidity of organizations.

Organizations need to keep a track of finance while the business operations are conducted. Accounting fits this need because it allows the companies create financial reports possible to compare with other companies or a given standard. The business owners as well as the managers also make use of it for reviewing the efficiency of operations. This information helps the managers and the business owners make decisions improving the profitability of the organization substantially.

If you are new to the accounting industry, you would be introduced to an array of terms. Even if they seem to be intimidating at first, it is crucial to familiarize yourself with the basic accounting terms and abbreviations. If you know these terms, you can shift your attention to learning the accounting strategies. Here is a list of a few accounting terms you need to gain acquaintance with.

1. Balance Sheet

Balance sheets are financial statements summarizing a company’s liabilities, assets and shareholder’s equity at a given point of time. These segments allow the investors form an idea of the things that the company owns or owes apart from the amount that is invested by the shareholders.

The balance sheet informs about the financial position as well and this information is invaluable to the bankers eager to find out whether a given organization can take additional credits or loans. Apart from the banker, others interested in the balance sheet include the potential investors, current investors, suppliers, competitors, government agencies and the labor unions.

     2. Asset

Asset can be defined as a resource with economic value that a corporation, individual or a country controls or owns expecting that it would provide benefits to him in the near future. The examples are securities, cash, inventory, accounts receivable, office equipment, car, real estate and other property. The assets are purchased in a bid to increase the value of the organization or to benefit its operations.