What Is Accounting?

Accounting is a systematic process of recording, classifying and summarising financial transactions over a period. Internally, accounts help understand the business’s financial position by monitoring costs and identifying expenses and profitable ventures. The account statements list the cash flow entries and the current value of assets and liabilities that help ascertain profitability. The books of accounts present accurate financial information for regulatory compliance and business decision-making. 

Importance Of Accountancy

Accountancy is important for many reasons – 

• Tracking income and expenses

The books of accounts record every transaction conducted by the organisation. Accountants apply various methods to classify expenses and income in different categories. They use accounting software, expense-tracking apps and spreadsheets for tracking and analysing transactions.  

• Provides quantitative and qualitative financial information

The financial statements include numbers that are quantitative values for revenue, expenses, assets, liabilities, etc. These can be used to ascertain financial ratios such as profit margins, debt-to-equity ratio, break-even point, return on investment, etc. This data is used by shareholders, debtors, the revenue department, and business analysts. It can give insights for investment risk analysis, tracking market trends, gauging business viability and more. 

• A comprehensive picture of business performance

In a business where time is crucial, account statements give concise information about specific items through numerical figures, which can be spotted at a glance. Accountancy, aptly referred to as the language of business, provides organisations with a structured framework to manage and record their financial affairs. 

• It is a transparent and decisive indicator of business finances

The primary function of Accountancy is to ensure accurate financial reporting through universal accounting standards and principles. Financial statements are shared with the investors, creditors, and regulatory authorities. Internally, the key decision-makers refer to the financial statements for identifying specific loss-making avenues or measuring the performance of new ventures. Externally, shareholders can check business performance for further investments or raise questions about business spending. Regulatory authorities and auditors study finance statements to ensure compliance with the law. 

• Budgeting and Planning

Financial data gleaned from accounting is important for budget allocations and planning expenses for the next accounting period. Through the budgeting process, organisations can forecast revenues, expenses, and cash flow for the period. They can decide which ventures to continue investing in, and identify measures for cost-cutting through changing vendors and suppliers or restructuring departments and departmental spending.

• Internal Compliance with Law 

Accountancy helps identify avenues for establishing internal controls that ensure compliance with laws and industry standards. The systems and practices help safeguard assets, prevent fraud and maintain accurate records. The internally established accounting standards and practices help monitor financial activities, detect irregularities and errors and mitigate risks. Adherence to established accounting principles helps implement robust internal controls that ensure business transparency, accountability and integrity of financial operations.

Accounting Basics Every Student Should Know

• Accounting Period: It is the period for which financial transactions are recorded. Commonly used accounting periods are fiscal periods, calendar years, or quarterly segments of calendar months.
• Accounts Payable: It tracks money owed to creditors. Examples: bills payable, debts to vendors etc.
• Accounts Receivable: It tracks the money owed to the business. Examples: unpaid invoices by customers, interest owed to the company, etc.
• Assets: These are the resources owned or controlled by the business that have measurable value and provide economic benefits. Assets are tangible or intangible.
  • Tangible assets: These are physical assets that can be seen and touched.
    • Property, plant and equipment (PPE): building, land, machinery, etc.
    • Cash and cash equivalents: money held in the bank. 
  • Intangible Assets: These are non-physical assets of value that cannot be seen or touched.
    • Intellectual property: patents, trademarks, copyrights, trade secrets, etc.
    • Goodwill: business reputation.
    • Investments: securities investments for long-term gains.
• Liabilities: These are the company’s financial obligations and debts to external parties. Liabilities can be current or long-term. Examples include –
  • Accounts payable: money owed to suppliers for goods or services.
  • Short-term loans: to be repaid within a year.
  • Long-term loans: to be repaid in periods longer than a year.
  • Unearned revenues: money received in advance for goods or services that haven’t been delivered.
  • Tax payable: tax amounts owed to government agencies.
• Balance Sheet: It is a standard financial statement of a business's assets and liabilities in the current accounting period. 
• Capital: It is the assets, cash or equity owned by the business or shareholders that generate revenue. There are different types of capital, such as –
  • Ownership equity: It represents the owner’s stake in the business.
  • Financial assets: Cash, property, investments, machinery, accounts receivable, etc., that are contributed by the owner.
  • Funding operations: Capital used to buy equipment, pay for daily operational expenses, etc.
• Cashflow: It is the balance of cash that moves in and out of the business during an accounting period. The cash flow includes cash movement in operating, investing, and financing activities.
• Closing the books: It refers to the final summation of the balance sheet for the accounting period. Once the asset and liabilities sides have been added and the final amounts totalling the incomes and expenses are entered, the books are closed for that period. If the income is greater than the expense, then the difference amount is the profit earned by the business.
• Depreciation: the business owns some fixed assets such as machinery, office computers furnishing, etc., which lose economic value over a period of time due to usage and wear and tear. This lost value is called depreciation. 
• Dividend: Dividend is the share of the profit earned by equity shareholders from the business. Generally, dividends are paid in cash, but in some cases, they may be paid in the form of bonus shares.
• Equity: It represents the monetary value that the business retains after paying off all its debts and selling all its assets. 
• Fixed costs: These are costs that the company will incur irrespective of the increase or decrease in revenues. For example, electricity bills, rent, salaries, etc.
• Income statement: It is a detailed statement of the total revenue earned by the firm in an accounting period. 
• Inventory: It is the assets held by the company that they will liquidate through sales. This includes the assets ready for sale, assets and raw materials in production.
• Liability: It is the money or debt owed by the business. This includes loans to be repaid, the amount to be paid to debtors and suppliers, etc.

Basic Components Of Accounting

Studying Accountancy At JAIN College

JAIN College, a part of the JAIN Group of Institutions, offers courses in Accountancy in PUC after 10^th grade and in undergraduate and postgraduate college courses such as B. Com and M. Com. The Department of Commerce at JAIN College offer special certification courses with the graduate programmes such as – 

• Certified Programme in AI for Accounting
• Strategic Finance Integrated with CFA
• Coaching in Chartered Accountant (CA) and Certified Programme in General Management
• Corporate Accounting Integrated with Certified Management Accountant (US CMA)
• Corporate Finance Integrated with Certified Public Accountant (US CPA) + Enrolled Agent (US EA)
• International Finance and Accounting Integrated with the Association of Chartered Certified Accountants (ACCA - UK)
• Risk Management Integrated with Chartered Institute of Management Accountants (CIMA - UK)