January 26, 2022


Accounting + Finance Blog

Detailed Definition of accounting with explanations

Detailed Definition of accounting with explanations

Accounting is the language of every business. Without regular accounting records, the business may fall into a pothole. And this is disastrous! To avoid this regular accounting records must be kept in the business. This article will help you understand the basic financial accounting processes for small businesses. Here, a detailed definition of accounting is given as well as explanations.

What is Accounting

Accounting is simply the process of putting financial transactions in the appropriate books and creating reports to management and other users to ensure optimum decision-making.

Accounting is defined as the process of collecting, recording, organizing, presenting, analyzing, and interpreting financial transactions to enable users to make informed economic decisions.

A detailed explanation of accounting

The accounting definition above is used to explained financial accounting. There are definitions relating to other branches of accounting.

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The term “process” referred to all activities that resulted in presenting a report to users. These processes are and are not limited to collecting, recording, organizing, presenting, analysis and interpreting financial transactions to enable users to make informed financial decisions.

Detailed Definition of accounting with explanations

The term “collecting” means obtaining financial data from source documents. The collected data are then “recorded” into the books of accounts (subsidiary books and ledger).

These recorded data are organized into separate books in the ledger for easy accessibility. Also, a monthly trial balance will be prepared and “presented” in form of financial reports. The report is further analyzed to help users make informed financial decisions.

The decisions undertaken by users include investing, capital budgeting, short-term, and long-term financing, dividends and mergers, and acquisitions.

However, in modern times, technological breakthroughs had changed the way accounting processes are carried out. There is accounting software that automatically entered financial data into the books of account. This automatically prepares a trial balance and simple financial statements. Such software also provides basic analysis for management. Examples of such software are Excel, Sage 50, and QuickBook. In this blog,  Quickbook and Google Sheet are used to carry explain the accounting processes.

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Next, bookkeeping will be defined and explained.