Understanding Accounting and Its Importance in Business

For some people, the science of accounting is related to the calculation system, but the fact is that accounting is a process that is not simple. What is accounting? What is the definition and understanding of accounting according to some experts? Sinaumedia will review it here.

This knowledge is quite widely used in daily applications, especially related to business activities.

By using this knowledge, entrepreneurs can monitor whether the business they are running is running well or not.

Well, by reading this article, you will have a better understanding of the following topics and be able to answer questions such as:

  • an information system that provides reports to interested parties regarding the economic activities and condition of the company. What is the definition of this sentence?
  • Accounting is the process of identifying, measuring and reporting economic information to enable clear and unambiguous judgments and decisions for those who use the information.

The definition or definition of accounting is as follows

Broadly speaking, the notion or definition of accounting is a process that begins with recording, classifying, processing, presenting data, and recording transactions related to finance.

Thus, the information can be used by someone who is an expert in the field and can be used as material for making a decision.

A practitioner who is an expert in this field is called an accountant.

The definition of accounting has also been referred to as the language of business to measure the results of economic activities in organizations and convey information to various parties, including management, investors, creditors, and regulators.

Various theories themselves have been put forward regarding the notion of accounting.

Various theories develop along with the increasing number of people who want to learn it, considering the science of accounting systems provides various conveniences in carrying out activities.

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Although accounting software is very helpful, but as an entrepreneur, accounting knowledge is very important to understand.

The definition of accounting according to experts is as follows

Various definitions and understanding of accounting represent different things. This difference occurs because the experts who put forward explore different fields of science.

Here are some definitions of accounting according to some experts:

  • Warren

What is accounting? In general, accounting or accounting is an information system that produces reports to interested parties regarding the economic activities and conditions of the company.

  • Paul Grady

What is accounting? According to Paul Grady, accounting is a body of knowledge and organizational functions that are systematic, authentic and original in recording, classifying, processing, summarizing, analyzing, interpreting all transactions and financial events and characteristics that occur in the operations of accounting entities with the aim of providing information that This means that management is needed as a report and accountability for the trust it receives.

  • Zophar Lumbantoruan

Accounting is a tool used as a business language where the information conveyed can only be understood if the accounting mechanism is understood.

Stating that accounting is a service activity whose function is to provide quantitative information which is then used for economic decision making.

The Process in Accounting Is As Follows

As it has been mentioned above that accounting is a process related to finance whatever happens in a business or organization.

The process consists of recording, summarizing, analyzing, and reporting data.

If you want to know more, here is an explanation of the four processes:

1. Take notes

The first and most important process in the accounting process is the recording of transactions that occur within the company.

This process is often referred to as bookkeeping, which is recognizing transactions and entering them into records.

Bookkeeping is concerned with recording only.

In accounting, bookkeeping is usually done for the sake of detailed recording and becomes a report to present data as a final financial report.

2. Summarizing

Generally, raw data is the result of recording transactions and is considered not very important.

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This raw data has no influence in the decision -making process.

However, this is where the role of the accountant is to use the raw data, divide it into categories, and translate it.

So, the usual process is to record transactions, then summarize them.

3. Report

Every business that happens in the company is the responsibility of management.

Every business owner should know the various operations or activities that take place in the company and how the company uses the money.

In this case, the owner of the company will receive a financial report for the company which is usually sent monthly.

Meanwhile, there is also an annual report that will summarize all the performance within the company.

sample accounting report
sample accounting report

4. Analyze

Finally, analyzing is an important final process in accounting.

After recording and summarizing, of course you have to draw conclusions.

This is where the important role of management to examine the positive and negative points.

In analyzing all of this, accounting introduces the concept of comparison.

Where you can compare sales, profit and loss , equity, and more to determine and analyze work and make decisions.

Of the many understandings of accounting science, all of them have almost the same goal where each goal is to provide accurate reports relating to company financial problems.

The definition of accounting will help you in presenting a detailed report on the company’s expenses and income so that you can find out the profits and losses.

In addition, the use of accounting knowledge will also help companies to identify employees who commit fraud.

Can you now answer the question what is accounting?

Again, accounting is the process of recording and processing data on every transaction that occurs in a business.