Introduction to Accounting Part I

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.

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