Introduction to Accounting- Characteristics Accounting

Accounting is also known as the financial language of the business.

Accounting is a process of identifying, measuring, recording, classifying, summarizing and analyzing the financial transaction of the business.

There are various characteristics of Accounting:

• Identifying various business transaction:  Accounting is a process of identifying various business transactions. Every business has variety of business transactions daily. For example: purchases, sales, other expenses, income from other investments etc. Each business has to identify such financial transactions.

• Measuring the transactions: Every financial transactions has to be measured in terms of money. "Money" in accounting is considered as the common unit and also the common medium of exchange. In India, Rupees is the currency used by every person.

• Recording the transactions: In-order to find out the financial status of the business it is important to record each and every transaction that takes place in business. Therefore, business maintains proper books of accounts known as book keeping. Business has to maintain purchase book for purchases, sales book for sales, cash and bank book for bank and cash related activities, also creditor and debtors book for credit related transactions and journal proper for other transactions. 

• Classifying the transactions: After posting the transactions of business in Journal, all the transactions are then classified into their respective ledgers. For example: if a business is selling mobile phone to a customer in cash, first of all a journal entry will be recorded in Journal and then the ledger posting will be done in cash account and sales account. 

• Summarizing the transactions: After posting the transactions to the respective ledger accounts, it is important to make the accounting information presentable to the users and the owner. This is called summarizing. It involves presenting the classified data in such a manner which can be understandable by the users. It includes Trial Balance, Trading Account, Profit & Loss Account and Balance Sheet.

• Analyzing and Interpreting the Financial data: It is important to analyze the financial data so that the users of financial statements can make sound decisions and proper judgement regarding the investment decisions and other sound decisions.

• Communicating the Financial data and report to the users: If you own a business or a company, it is important to communicate about the financial data or statements of the business, so that the users can take sound decisions regarding the investment in business. Every user is communicated regarding the financial information through the "Annual Report" at the end of the year.