An Introduction to Accounting

Why and how accounting helps maintain good records and enables businesses to keep accurate and systematic records of all their financial transactions.

When we visit the local Kirana (Grocery) shop where we have monthly credit, we can buy items like matchboxes, candles, soap, coffee, and spices without paying immediately. Instead, the store owner notes the cost of our purchases in a notebook under a page with our name. At the end of the month, we return to the store to settle the total amount owed, and the payment is recorded. The store owner keeps similar records for all his customers.

He also notes down the supplies he receives and the payments he makes to his suppliers. This helps him track how much he owes and to whom, as well as how much money others owe him and when they will pay. Every business, no matter its size or structure, keeps track of all its transactions.

Have you ever thought why do they keep record of business transactions? Without these records, businesses wouldn’t know how much they owe, when they need to pay, or how much they are owed and when they will receive it. They also wouldn’t know their earnings over a certain period.

Keeping detailed records is essential for businesses to function smoothly. It helps them manage their finances, make informed decisions, and stay organized.

Without record-keeping, businesses would struggle to understand their financial situation or plan for the future.

This process of keeping organized and systematic records is known as accounting. Accounting is important because it provides a clear picture of a business’s financial health. It shows what the business owns, what it owes, its profits, and its expenses. This information is crucial for making business decisions, planning for growth, and meeting financial obligations.

Every business, regardless of its size, has numerous transactions that need to be recorded in the books of accounts through bookkeeping. To understand accounting, it is essential to first grasp the fundamentals of bookkeeping.

Learn more in our next article about Bookkeeping and Accounting.