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Introduction to Accounting


The ultimate aim of any business is to earn a profit. Profit earning is not an easy task. For earning a profit the businessman will purchase the goods in one place at certain price and sell it at another place at higher price  an the purchase price or convert the raw material into finished products and sell them to various customers at a certain price which will give some percentage of margin on cost of production. But, this may not be true in all cases, because the goods produced or purchased may go out of fashion or competitors may enter the market. Due to this reason, sales will decline automatically. The business runs at a loss or at a very small margin. However, the businessman wants to know the profit or loss for the consolidated transaction at the end of the financial year. So, he needs more information for planning control, evaluation of performance and decision making. This information can be provided only when business transactions are recorded, classified and summarized properly.

In order to achieve the above purpose, it would be necessary to record the business transaction according to well defined Accounting system.


Accounting is the art of recording, classifying, summarizing, analyzing, and reporting of business transactions and interpreting their effect on the affairs of the business concerns. As Accounting is commonly referred to as the language of business, accounting information has to be suitably recorded, classified, summarized and presented.


In 1941, The American Institute of Certified Public Accountants defined accounting as follows. “Accounting is the art of recording, classifying and summarizing in a significant manner the terms of money transaction and events which are, in part at least, of a financial character and interpreting the results thereof.”


A well designed Accounting System helps:

(i) To keep the proper records of financial transaction which enables to prepare final accounts.

(ii) To meet the legal requirements such as sales tax and income tax disputes as and when necessary.

(iii) To protect the properties of the business concerns.

(iv) To provide data to interested parties like owners creditors, debtors, investors, employees, government authorities and researchers.