What is Accounting?

Accounting is a service activity and has been called "language of business". Accounting terms and concepts are used in statements and reports submitted to interested users - the owners, investors, creditors, government, and business analysts.

Accounting is an art of recording, classifying, summarizing in a significant manner and in terms of money, transactions, and events which are in part, at least, of a financial character, and interpreting the results thereof.

Recording
This function deals with the writing on the books or records of the business transactions or events. This is technically referred to as Bookkeeping.  Bookkeeping is defined as the systematic and chronological recording of business transactions or events.

Classifying
In the recording and summarizing functions, similar items are grouped or sorted under the same names. In the preparation of accounting reports, items maybe arranged according to their liquidity or permanent nature or whether items are operating of non-operating.

Summarizing
Periodically, usually yearly, or sometimes monthly, quarterly, owners of business require of the accountant information regarding the status of the business. The accountant groups and summarizes the details of the data in the accounting records.

Interpreting
Reports and statements prepared and submitted by the accountant are interpreted for the guidance of management. The accountant prepares additional explanations, notes, analysis and the like.

BUSINESS ORGANIZATION

The accountant often meets three types of business organizations, namely:

Sole or Single Proprietorship
This is the simplest form of business as it is exclusively owned by only one individual. The owner acts as the active manager. He may supply all the capital from his personal funds or from funds borrowed from other parties. For accounting purposes, it is advisable to maintain separate records from the business  and from those of the owner's personal affairs.

Partnership
This is the business organization owned jointly by two or more persons. All the owners agree as to their capital contributions, divisions of the business profits and losses, and other incidents matters. According to Partnership Law, if the partnership is formed it acquires a legal personality distinct and separate from the owners.

Corporation
This is an organization of not less than five persons, whose capital is divided into shares of stock. It is a legal personality distinct and separate from the stockholders. As corporation it has the following advantages from other types of business organizations: limited liability of stockholders, greater source of capital, and longer period of existence.