When first learning about accounting, you may search for questions like:

Accounting is the systematic process of recording and analyzing financial transactions. It shows how money enters and exits a business or individual’s financial life, giving a clear picture of their financial health.

Definition: "Accounting is the discipline that deals with collecting, measuring, and communicating financial information to help users make informed decisions."

At its simplest, accounting is the process of keeping track of money. It involves recording how much is earned, spent, saved, or owed—so you always know where you stand financially.

Accounting collects and organizes financial data to help make decisions. It tracks revenue, expenses, and profit.

Example: If you own a small café, accounting helps you track earnings from selling coffee and expenses like ingredients, staff wages, and rent. If income is more than expenses, you make a profit. If not, you may need to cut costs or increase prices.

Basic accounting includes noting down income and spending. It helps ensure your cash flow is positive and you’re financially stable.

Accounts are individual records used to track types of transactions like income, expenses, assets, and liabilities.

Example: A bookstore might use an "Inventory Account" to track books in stock, and a "Cash Account" to monitor daily sales.

What is the importance of accounting?

Accounting is important because it ensures financial transparency. It helps with budgeting, identifies profit/loss, and is essential for tax compliance.

In everyday life, accounting helps people manage expenses, budget for goals, and prepare for future needs like education, home buying, or retirement.

Objective and Uses of Accounting

  • Track Income & Expenses: Know where your money comes from and where it goes.
  • Assist in Budgeting: Helps in planning future financial goals.
  • Prepare Financial Reports: For decision-making and external reporting.
  • Ensure Legal Compliance: Helps fulfill tax and regulatory requirements.
  • Support Decision-Making: Informs investment and cost-cutting strategies.