Accounting relates to the method in which companies and firms show their financial performance to the traders, creditors, management as well as other fascinated parties who all have direct or indirect interest in the firm through planning different types of financial statements. According to International Accounting Standards Boards (IASB) Accounting is the actual platform for the preparation as well as presentation of financial statements. Accounting allows traders and management of the organization to utilize the financial information in creating financial decisions. Decisions relating to invest in company or to need expansion of credit limit through the bank. Almost all the main decisions are obtained after total overview of the financial info of the organization.
In Accounting, Journal entry record every deal together with the correct narration, by where data is moved to make the ledger, and from ledger we make trail balance at the end of the accounting period, that shows the actual balance in individual account. The amounts of several accounts are introduced in the financial statements.Financial statements contain planning of Income Statement, Balance Sheet and Cash flow statement.Income Statement is well prepared at the end of the each and every financial year and the major elements of this statement are Revenue, Expenditure Gains and losses. Balance sheet is the reflection of asset and liabilities of the companies which also displays the proprietors value.
In Accounting, Cash flow statement is viewed as as one of the essential financial resources where we get total cash receipts and cash payment of the organization. Cash flow statement are classifies into Operating Cash flow, Investing cash flow and Financing cash flow. Yet another main element of the accounting system is the financial footnotes which contains all the major financial disclosure that provides more financial details about the info offered in the financial statement of each and every component. Financial footnotes gives information in regards to the methods in which accounts is organized, assumption and some other major choice which were used by the supervision at the time of planning financial statements.
In Accounting, Management discussion and analysis (MD&A) is yet another essential details included in the accounting process. MD&A includes much developed conversation on the different accounting policies used by the operations during the complete financial period. MD&A gives the upcoming guidelines and forward looking statement relating to the liquidity, new policies, development of revenue or any some other important growth which directly or indirectly effect the earnings of the organization.
Therefore we see that accounting procedure is important in knowing the financial operation of the firms. Financial statements in the different parts of planet follow various standard and that lead to mistakes in the financial coverage. Hence it is one of the main reasons why worldwide bodies around the world are recommending to have regularity in the accounting preparation by following similar accounting theory all over the world. The main accounting criteria are Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). This will help in evaluating accounts of various companies simply and will help big firms to acquire tiny firm around the world.