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The flow of information through the Books of Accounts Cash vs Accrual Method The ICAI ensures that this format is followed properly.īusinesses in India and most of the world follow a standard flow of accounts through various “books”. The ASB determines a standard format for accounting to be followed in India. In India, Accounting is regulated by the ASB and the Institute of Chartered Accountants of India ( ICAI). Read more: Single Entry System & Double Entry System There are many advantages of this method over the single-entry system. The generally accepted and widely used method is the double-entry system. There are two ways of recording the movement of money. These statements are then used to make decisions to improve or maintain the financial performance of the company. At the end of the accounting period, the accountant prepares reports that summarize the company’s financial performance during that period. How Does Accounting Work?Įvery single financial transaction by the company is recorded in the books of accounts. The goal of social accounting is to encourage organizations to consider not only their economic success but also their contributions to social well-being and environmental stewardship. It goes beyond just financial numbers and takes into account the broader effects of the organization’s actions on society, the environment, and stakeholders. Social accounting is the process of measuring and reporting an organization’s social and environmental performance and impacts. Managers and executives use cost accounting to make informed decisions about pricing, product mix, and production processes. There are various cost accounting that provides insight into the cost of production or service. Cost AccountingĬost accounting helps businesses analyse spending and make the most efficient use of money. It also focuses on ensuring that businesses pay the correct amount of taxes to avoid penalties. Its primary objective is to minimize an organization’s tax liability by taking advantage of tax deductions, credits, and other incentives tax authorities offer. Tax accounting deals with the preparation and filing of tax returns and compliance with tax laws and regulations. Managerial Accountants work closely with other teams like marketing, operations, and finance, to ensure that financial information is shared and used effectively throughout the company. Managerial accounting focuses on communicating financial information to managers and executives, so they have access to relevant, timely financial information and can make well-informed decisions. Its objective is to prepare the three main financial statements: the Income Statement, Balance Sheet and Cash Flow Statement. Let’s understand the different types in more detail: Financial Accountingįinancial accounting focuses on preparing financial reports for external shareholders of the business, like investors, creditors, regulators and the general public.

Types of Accountingĭepending on the kind of transaction, objective and need of the hour, there are different kinds of techniques that accountants use. It helps stakeholders know if the organization is making the most efficient use of money, whether the business is making profits or if it is running on losses.Īccounting also helps with compliance, since most businesses are legally required to disclose their statements of accounts to a regulatory body like SEBI or the SEC.

Importance of AccountingĪccounting is important because it helps stakeholders understand an organization’s financial performance and whether it is making the most efficient use of its money. Let’s understand why accounting is so important.

Communicate the information to various stakeholdersĪccounting is an indispensable part of any organization.Derive interpretations and find patterns.Compiling the records into various books of accounts.The process of accounting has multiple steps: Why do founders need to understand accounting?Īccounting helps keep track of money and provides a clear picture of how well an organization is doing financially.Why is it important to maintain books of accounts?.