Concept of financial Accounting
Accounting is the art of recording, classifying and summarizing the business transactions and events. Double Entry System is the base for recording business transactions. According to this system, every business transaction has two aspects i.e., we receive something, we give something else in return. So for every debit there is always corresponding credit and vice versa.To standardize the accounting information, every organization would have to establish certain accounting policies based on GAAP. Accounting policies encompass the principles, bases, conventions, rules and procedures adopted by managements in preparing and presenting financial statements.While the conventions are based on what is practicable, there are certain accounting concepts, which are based on logical considerations. Accounting concepts are ideas and assumptions that are fundamental to accounting practice. Some of the important concepts are – money measurement concept, business entity concept, going concern concept, duality concept, cost concept, matching concept, realization concept, and accrual concept.The primary function of financial accounting is to provide relevant financial information to users for making decisions and taking actions. The primary means of providing financial information to investors, creditors and other external users is through financial statements.The primary financial statements include the profit and loss account, balance sheet and cash flow statement. Understanding financial statements is necessary for decision-making to all stakeholders. On completion of this chapter, we are now conversant with the objectives and components of financial statements, and the various users of financial statements.