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What is accounting and its purpose?


Accounting is a critical function of systematically identifying and classifying all monetary transactions recorded by a business or an organization and then reviewing them using analysis to forge meaningful and accurate reports. The main purposes meaning of accounting are:

1. To keep systematic records of financial transactions, i.e., to draw the financial picture of the business enables you to see where the money has been spent, earned, invested. Other financial areas can also be tracked, such as the ones involved with taxes, profit/loss, depreciation, etc.

2. To wind-up the financial information – Summarized financial transactions in financial statements like income statement, balance sheet, cash flow statement and many more. Generally they are called financial statements which give snapshot summary of financial performance and position.

3. To reveal financial information – The financial statements are analyzed to identify profitability, liquidity, solvency, growth trends or other aspects of the organization to make the sound decision. Ration analysis divides the mortgage into multiple payments.

4. To report and periodically communicate financial information – The quarterly financial statements, as well as the annual accounting analysis reports are submitted to all relevant parties, including management, investors, lenders and regulatory bodies, to allow for transparency on the profits generated, and financial situation of the company.

Fundamentally, accounting compiles, processes, analyzes and provides financial information on economic activities to different users such as investors, creditors, government and yourselves for making decisions, monitoring and reporting. The accounting has to be done in accordance with the norms to show the exact financial picture of any organization.

What is golden rule of accounting?

The golden rules of accounting stand for the main principles or guidelines that are greatly used in the accounting practices of different organizations. The accounts found in income statement include revenue, expenses, and net income. Some of the main golden rules of accounting include:

1. Full Disclosure Requirement – This should be in all the financial records and should be in a clear and understandable manner.

2. Mismatching Principle – Expenses should be matched to related revenues, according to the period when they were used to generate sales.

3. Revenue Recognition Principle – a revenue will be recorded only when it is realized or realizable and earned, not upon accrual of a receivable.

4. Historical Cost Principle – It is very common to record the assets and liabilities at the original purchase price and not their market values which continuously fluctuating from time to time.

5. Modesty Principle – Accounting records and reports must be exact and verifiable, without admixture of personal judgment.

6. Consistency Principle – Policies and practices used in financial reporting must be in practice from one period to another. There should be a notice provided on the responsibilities of the conveyor changes.

7. Conservatism Principle – For every situation where the ous is not clear, select the one that gives the most conservative or cautious current financial outlook.

8. The Principle of Materiality – It regards information that could affect investors’ decision, as important while the unimportant, uninfluential one is the minor detail.

Hence, in a nutshell, the golden rules are focused on giving stakeholders exactly what they need from a well-known report in a straightforward, bias-free manner, at all times. Then, we will be showing and explaining such episodes of high quality accounting practices.



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