Introduction to Accounting

Accounting is the language of the business. It is the system of recording, summarizing, analyzing and reporting financial information to decision makers in the form of financial statements. Accounting is a system meant for measuring business activities, processing of information into reports and making the findings available to decision-makers.

A business may have a lot of aspects which may not be of financial nature. As such, a better way to understand accounting could be to call it The Language of Financial Decisions. The better the understanding of the language, the better is the management of financial aspects of living. Many aspects of our lives are based on accounting, personal financial planning, investments, income-tax, loans, etc. We have different roles to perform in life-the role of a student, of a family head, of a manager, of an investor, etc. The knowledge of accounting is an added advantage in performing different roles. However, we shall limit our scope of discussion to a business organisation and the various financial aspects of such an organisation.

When we focus our thoughts on a business organisation, many questions (is our business profitable, should a new product line be introduced, are the sales sufficient, etc.) strike our mind. To answer questions of such nature, we need to have information generated through the accounting process. The people who take policy decisions and frame business plans use such information.

Accounting can be divided into several fields including Financial Accounting, Management Accounting, Tax Accounting, Cost Accounting and External Auditing. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statement, to the external users of the information, such as investors, regulators and suppliers. Management accounting focuses on the measurement, analysis and reporting of information for the internal use by management. (Later discuss each topic)

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