Principles of Accounting Essay Example | Topics and Well Written Essays - 2500 words

Principles of Accounting - Essay Example In simple terms accounting can be also referred to as â€Å"the language of business† because of its role that helped in recording and processing the financial information that the firm requires for management purpose (Mukherjee & Hanif, 2003; Galanza, 1995). The main purpose of accounting is to provide financial information that is required by an economic unit to enhance the efficiency of its operations. The tern economic entity not only signifies a business unit but also the entities that are operating without the purpose of profit-making like the public charities, clubs, churches and government bodies. The accounting information helps in decision making in the organization. For instance decision like availability of cash while going for purchasing of new equipments or whether the business is running in profit requires the knowledge of accounting information. This accounting information for a business unit is recorded by the accountant (Nobles, et al., 2012). Book keeping Me thod Book-keeping is referred to as the science and arts of recording business transactions and other financial transactions that are related to any institution, firm and associations of person or company. It is recorded in certain books at regular interval following certain definite rules. It is called as science because it represents certain systemized knowledge that are based on certain set of principles, which are followed throughout the process to ensure that the reason for recording the transaction can be explained carefully. On the other hand it is called arts since it involves the human ability and skill for recording the business transaction as per the principles (Kumar & Prasad, 1999). Scope The process of Book keeping involves two significant steps. Firstly the process involves recording of all the transaction in a book called journal. Secondly transferring all the transactions that were previously recorded into another book called as ledger. In order to know the net effe ct of all the transactions the various accounts that are recorded into the ledger are balanced. The main theme of book keeping is to prepare and maintain the records till the stage of preparation of Trial Balance (Rao, 2005). Importance Book-keeping serves as the foundation of the entire financial reporting and accounting process. The responsibility of book-keeper is to analyze and record all the financial transaction occurring in an organization. The sum total of all the transaction forms the basis of everything that includes grant proposals, cash forecast, budget, tax return and financial reports. The employees and other staff of an organization must understand the goal and mission of a non-profitable organization, in order to perform their jobs in an effective and professional way. This is particularly true for the accounting system. Each transaction that is being recorded while book-keeping is significant for the volunteers, donors, board members, management, community and emplo yees of the organization. Accurate information delivered in timely manner provides the stakeholders of the organization with the comment regarding the financial health of the organization.