Introduction to Accounting
Part I
When we see in our mind's eye or
we are new to accounting the perception builds as the rock of numbers with the
weight of tons of figures which has no end to balance the equation or stop it
with final and constant figures. Why do we treat accounting this way? Why do we
think that it is another face of mathematics? Why do we hesitate to recognize
its importance in our lives? I don’t want to make you feel a load in your minds
just want to realize that everything in our life which starts from a day by
doing routine tasks creates an equation. Now we have to understand the
creation, realization & application of these equations. Accounting is not
about doing addition, subtraction, multiplication or division but with the
combination of all these has a much broader scope in it. We will understand
this broader scope when we go ahead.
Now it’s time to let you people
come to the point “Why accounting is so significant?” As I have mentioned
before the process of creation which mean “Indentifying”, realization which
means” measuring” and application which means “communicating” the economic
information. Why this communication of economic
flow is so important. Because on the basis of this information the user will
take any decision. This decision could be in terms of investing more money, in terms
of withdrawing investments, in terms of measuring the expenses & revenues,
in terms of measuring future cash flows. The bottom line is decision. We can
only take a good decision when we have right information and we can only get
good result from that information by triggering out the flow of this
information to the right department or persons at the right time. That’s why we
say “time is money”.
So we have reached to the point
that accounting is a process of making timely decisions. For example if we
consider a business of motorbikes so we will be interested in knowing that how
much motorbikes have been sold this day,
week, month or a year. What are the cost and the margin? Percentages of the
modes of sales cash or credit, the ratio of recovery, payments cycles and
submission of taxes. This is not complex
just matter of handling timely information. You will be an excellent decision
maker if you have proper information. Just realize why people and businesses can’t
afford to work without having proper accounts departments & accounting
records. Because if an organization is not recording its daily events and activities
in terms of accounting records how will they are able to analyze their current
position. Position is not an ordinary term in financial accounting vocabulary it
tells the worth of the business, it tells how much cash a business have, it
tells how much they are owed & owe
to someone else. We say this position as a financial position and this
financial position is reflected by a statement named “Balance Sheet”. We will
discuss balance sheet in later posts.
I
hope that I have fairly introduced financial account otherwise you may advise
and accept my sorry in advance.
Waiting
for your feedback.
