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Definition of Accounting

Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part of least, of a financial character, and interpreting the result thereof.

Transactions Are Processed In Three Different Stages:

Before the first stage, we must first analyze the transactions.

(a) Recording:

In the first stage the transactions are recorded using a journal entry.

(b) Classifying:

In the second stage the transactions of the same or similar nature are classified and posted in the ledger.

(c) Summarizing:

In the third stage all necessary date and information are summarized on the basis of classified record of transactions communicated to the management and other interested persons. Financial Statement is the report consisting of Balance Sheet, Income Statement and Statement of Cash Flow.

(d) Interpretation:

This is final function of accounting. Accounting not only creates data through recording, classifying and summarizing events but also uses them by interpreting. The recorded financial data is interpreted in a manner that the end users can make a meaningful judgment about the financial conditions and profitability of the business operations. The data is also used for preparing the future plan of action of the company.

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