Procedural Aspects of Accounting
Procedural
Aspects of Accounting
On the basis of above
definition, procedure of accounting is divided into two parts:
(1) Generating financial information.
(2) Using the financial information.
(I) Generating
financial information
(a) Recording:
- It is basic function of
accounting. All transaction or events
are evidenced by some documents like Purchase Bill, Bank Pass Book, Sale Bill,
Salary Slip etc. Recording is done in a book called Journal.
(b) Classifying:
- It is systematic analysis of recorded data. In this stage transaction or events of one
nature are put at one place so as to make more useful or informatics for uses. Book containing classified information is
called Ledger.
(c) Summarizing: -
It is preparation and presentation of classified data to internal as well as
external users of financial statement. This process leads to preparation of
Trial Balance, Profit and loss Account, Balance sheet.
(d) Analysis and
interpretation: financial data is analysed and interpreted so that the
users of financial data can make a meaningful judgement of the financial
performance(profit) and financial position of the business. Analysis helps in
planning for future in better way. It is done through many tools like ratio
analysis etc.
(e) Communicating:
- It is transmission of summarized, analyzed and interpreted information to
users so that they can take rational decision.
It is done through accounting reports like P & L A/c, Balance Sheet
etc.
2.Using
the financial information
Users not only include
proprietor or owner but also include investor, employees, lender, suppliers,
government, customer and public at large.
Accounting data is more useful if it stresses more on economic substance
rather than technical form. Information
is useless and meaningless unless it is relevant and material.
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