Brief Introduction To Bookkeeping And Accounting

Accounting refers to the science of recording, reporting and then analysing the business transactions between companies. It is a permanent form of recording whereby, the record functions as the solid proof from which deductions regarding the financial performance of the company in a year or so may be deduced. The interpretation part is however as important as the recording. The task of the accountant also involves simplifying the process of arriving at financial records of the company’s history of transactions. The company needs to keep itself abreast of its day to day dealings and also of its yearly or quarterly turn-outs so as to conclude whether the company is running a profit or a loss. In a sense, it is the accountant who keeps the company aware of its status and thereby acts as a warning signal. The entire business of keeping a record of transactions began in the ancient times with the advent of bookkeeping.

This is the highly mechanical act of simply noting down the records and not really involving in any kind of financial analysis. Accounting, which developed out of this simplistic practise of maintaining accounting records, became a necessity when financial dealings became more and more complex with the beginning of industrialisation and then capitalism. Business companies emerged and started expanding which contributed to the complexity of all financial dealings. Therefore, accounting in the present times has come to include within its fold, the act of bookkeeping along with a host of other acts. Accounting is complex because it has to meet a huge number of requirements, in the absence of which a company might suddenly find itself on the wrong side of the law. A company is answerable to the codes outlined by taxation authorities, investors, government financial bodies, managements and other such institutions. It is important to have properly analysed records since in their absence, the tax authorities might slam the company with an overestimation of profits. In the event of defending a charge of insolvency, the proper records would become an alibi. For all this, accounting becomes a necessity for any business transaction.