Accounting

What is Accounting? 

Accounting is the process of recording financial transactions, pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transaction to oversight agencies, regulators, and tax collection entities.

Father of Accounting :- Luca Pacioli is known as the "Father of Accounting". 

The objective of Accounting :-

1) Maintaining systematic financial records One of the most important accounting objectives is that accounting helps the business organization keep a systematic and accurate record of the day-to-day transactions, which helps to understand the working of the business, payments made, income received, etc.

2) To estimate and ascertain profits or losses Recording transactions concerning revenues and expenditures helps us ascertain the profit/ loss at the end of the financial year. Ascertaining profits or losses is important to make payments, making it one of the important objectives of accounting.

3) Preparing financial reports to assess the financial position This helps in the analysis of the financial position of the business organization. Ascertaining profitability can help us understand the strengths and weaknesses of the business organization and formulate various policies and strategies to correct the weaknesses and improve the organization's strengths.

4)To forecast future payments, expenditures and budgets Accounting helps to predict the future profitability of a business entity. This helps plan future payments, debts, expenditures and budgets accordingly.

Types of Accounts

There are basically three types of Accounts maintained for transactions

• Personal Account
• Real Account 
• Nominal Account

Personal Account: Any individual person or any firms or any company or a bank is considered in a Personal account. For example: - Rajesh Singh, Muna Enterprise, Wipro Pvt Ltd, PNB Bank, Capital etc. 

Real Account: Account of any physical things. The cash account or goods account are examples of Real account. For example: - Cash, Land, Building, Furniture, Computer etc. 

Nominal Account: Account of any invisible things that means that things are in terms of cash are examples of Nominal account. For example: - Discount, Commission, Salary, wages, Freight etc.

GOLDEN RULES OF ACCOUNTING

• Rule 1: Debit What Comes In, Credit What Goes Out.
  
• Rule 2: Debit the Receiver, Credit the Giver.
  
• Rule 3: Debit All Expenses and Losses, Credit all Incomes and Gains.

GROUPS

Groups are collection of ledgers of the same nature. Account groups are maintained to determine the hierarchy of Ledger Accounts, which is helpful in determining and presenting meaningful and compliant reports.