Introduction to Accounting | Part-1 Accounting Series | Master the Basics of Financial Accounting

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In this video, we introduce the basics of accounting and explore its importance in financial reporting, decision making, and business management. Learn about key concepts such as financial transactions, profit and loss accounting, and the different types of accounting like financial, managerial, and cost accounting. This video is perfect for beginners looking to understand how accounting impacts business performance and investor relations. Get started with the fundamentals that lay the groundwork for more advanced accounting topics. Stay tuned for more in the Accounting Series!
Introduction to Accounting

The process of recording, monitoring, and analysis of business transactions is called as Accounting. In Accounting process the financial transactions are collected, summarized, classified and reported to decision makers, oversight agencies, regulators, and tax collection entities.

Or in other words,
Accounting is a process of identifying and measuring quantitative financial activities and to communicate these financial reports to the decision-makers.

The main goal of accounting is to accurately record and report an organization’s financial performance to Stakeholders, Shareholders, Investors and Lenders.

Importance of Accounting

1. Keeps a record of business transactions
Accounting is important, as it keeps a systematic record of the organization’s financial information. Up-to-date records help users compare current financial information to historical data. With full, consistent, and accurate records, it enables users to assess the performance of a company over a period of time.

2. Facilitates decision-making for management
Accounting is especially important for internal users of the organization. Internal users may include the people that plan, organize, and run companies. The management team needs accounting in making important decisions.

3. Communicates results
Accounting helps to communicate company results to various users. Investors, lenders, and creditors. Investors may be deciding to buy shares in the company, while lenders need to analyze their risk in deciding to lend. It is important for companies to establish credibility with these external users through relevant and reliable accounting information.

4. Meets legal requirements
Proper accounting helps organizations ensure accurate reporting of financial assets and liabilities. Tax authorities use standardized accounting financial statements to assess a company’s declared gross revenue and net income. The system of accounting helps to ensure that a company’s financial statements are legally and accurately reported.

Standard Accounting Features:
1. Wider Applicability
2. Easy Transactional Recording
3. Hierarchical Account & Ledger Classification
4. Useful Analysis & Reporting
5. Highly Objectivity
6. Summarized Accounting MIS
7. Valid for Auditing and Compliance Filing
8. Simple Interpretation
9. Better Repeatability

Types of Accounting
Accounting can be classified into two categories – financial accounting and managerial accounting.

1. Financial Accounting
Financial accounting involves the preparation of accurate financial statements. The focus of financial accounting is to measure the performance of a business as accurately as possible.

2. Managerial Accounting
Managerial accounting is a process that allows an enterprise to achieve maximum efficiency by reviewing financial accounting, deciding on the best following steps to take, and then broadcasting the required steps to all internal business managers. The reports serve to assist the management team to make tactical decisions.
An example of managerial accounting is cost accounting. Cost accounting focuses on a detailed break-up of costs for effective cost control. Managerial accounting is very important in the decision-making process.

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