|What is Accounting||Accounting in practical life can be termed as book keeping or managing day to day transaction into systematic order such that it adds to detailed trail for a particular transaction. Some example of transaction which normally occur in accounting are Purchase, Sale, Bank charges, cash deposit, cash discount debtors and creditors etc.
Journal Entries are recorded which are reflected in ledger and that gets reflected in trial balance and once the closing entries are performed it results in Balance Sheet and Profit and loss Account.
|Why is it required||There are some authorities which require compliances such as
Bank – For providing Loans they demand last few years Financial Statement which requires accounting and book keeping.
User(Client): In todays world if you need to say any thing you must have proof along with you to justify your words and Financial Statement justify your profits and return to all.
Compliance: Financial statement is needed for filling of Income tax Returns and for audit purpose and the base for formation of financial statement is accounting. In case companies it needs to file with ROC.
In case of Listed companies they need to update their quarterly results which are not possible without account.
Self Regulation and Documentation: Any thing to be memorized for long the same needs to be documented it helps in tracking the payment due to be recovered and the dues to be paid .It protect you to from frauds and scams that can occur in your organization due to lack of proper accounting.
|How does it assist in formation Financial Statement||When journal entries are performed in a system software name tally then that entries get reflect in ledger and through their by doing all the entries on periodic basis and maintaining books of account you tend to form financial statements. So any difference can be easily traced when Accounting is done properly and regularly.|
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