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Accounting is a systematic practice, work, or process of communicating and recording financial information. In a broader sense, it’s known as ‘Language of Business’. The primary role of accounting is to record a company’s financial transactions – standardized in terms of measurement, disclosure, and provision of various financial details.

  1. Recording: Accounting is pivotal for systematically recording financial transactions and events pertaining to business. This involves the process of journalizing, posting, and preparing a trial balance in sequential order.
  2. Classification: The recorded transactions are classified into appropriate accounts such as sales, purchases, income, expenses, etc.
  3. Summarizing: This involves presenting the classified data in a manner that is understandable and useful to the internal as well as external users of financial statements. This includes preparation of financial statements like the balance sheet, income statement, statement of changes in equity, and cash flow statement.
  4. Analysis & Interpretation: Financial statements are analyzed to assess the financial health and operational efficiency of the company. Various techniques such as ratio analysis, trend analysis, and common-size statements are employed to draw meaningful conclusions.
  5. Communication: Accounting plays a crucial role in communicating these analyzed and interpreted financial facts to the interested parties such as owners, investors, creditors, government, public, etc.
  6. Statutory Compliance: Accounting helps in fulfilling statutory compliance. Records maintained by the accounting department help in filing financial statements with regulators, shareholders, and the public. The organization is also able to pay taxes on time.
  7. Financial Position: With the help of Balance Sheet, stakeholders can get a clear picture of the financial health of an organization.

Accounting is a crucial discipline for keeping track of quantifiable factors for a business or an individual. The principles of accounting are applied in business entities, non-profit organizations, and government bodies. There are various branches of accounting including financial accounting, managerial accounting, cost accounting, tax accounting, and auditing.

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