What is Accounting and How it Can Help You?

Visit: http://www.emirates-business-class.com/

Debit, credit, asset, liability, equity. 

Maybe right now, you are wondering what these words were all about. Luckily, you have a smart friend and he told you, "Those words are accounting terminologies." But instead of feeling relieved, it gives you more curiosity and you asked this question:

What is accounting?

From this moment on, let your friend rest for a while and I will be the one who will give you an overview about this thing.

Though it may sounds cliché but what is accounting all about?

How it can helps us in our daily lives?

First and foremost, let’s define accounting.

The American Institute of Certified Public Accountants define accounting as follows:

"an art of recording, classifying and summarizing in a significant manner and terms of money, transactions and events which are in part at least of a financial character and interpreting the results thereof."

Accounting is important because it identifies, measures and communicates information about entities in order to make a sound decision.

Generally, accounting profession has three main areas namely as:

1) Public accounting - rendering independent and expert financial services to the public e.g. auditing, tax services and management advisory services

2)Private accounting - being part of the entity and assisting management in planning and controlling business operations

3) Government accounting - concerned about the utilization of government funds and resources

In general, there are different kinds of user of financial information such as:

a) Investors - They are most likely concerned with the risk and profit for their investments.

b) Lenders/Creditors - concerned whether their loans and receivable offered will be paid when due

c) Employees - whether the entity can provide remuneration, and other employee benefits due to its stability and profitability

d) Customers - concerned about the continuance of the entity

e) Government and agencies - concerned about compliance and utilization of resources of the entity

f) Public - contribution to the economy

As time goes by, accounting become complex due to different transactions emerging. In order to account these transaction, accountants formulate rules, procedures and practices which is now known as generally accepted accounting principles (GAAP.)

Generally accepted accounting principles are made mostly from agreement rather than being develop from theories and concepts. The principles are mostly developed from basis of experience, reasons, custom, usage and practical necessity.

But aside from GAAP, accounting was also practice in line with the accounting standards (AS) and Financial Reporting Standards (FRS) in order to avoid confusions and achieve uniformity in presentations. 

In conclusion, accounting is a great tool not only in business but also in our personal lives for us to face the overwhelming challenges of financial world.