Role of Accounting in Business and its importanceĪccounting provides clarity in business that helps make the right decisions based on expenses, tax liabilities and cash flow. Let’s first understand the role of accounting in a business, to whom it applies, and find out the benefits of good accounting practices that follow these three golden accounting rules. To understand these rules, we need to take them individually and in the proper context. Rule 3 - Debit all expenses and losses and credit all incomes and gains Rule 2 - Debit what comes in, credit what goes out Rule 1 - Debit the receiver, credit the giver It also requires keeping the accounts updated with the most current transaction updated, reflecting an accurate picture of an institution's current financial condition. ![]() That, in simple terms, translates to the recording of financial transactions systematically to keep a record of the transactions. Accounting, according to Wikipedia,” is the measurement, processing, and communication of financial and non-financial information about economic entities, such as businesses and corporations”. The modern profession of chartered accountancy originated in Scotland in the nineteenth century. They simplify sophisticated bookkeeping operations into a set of ideas that may be commonly comprehended, studied, and applied.Īccounting has been around since time immemorial and can be traced back to Mesopotamian civilizations. The father of accounting, Luca Pacioli, was the first person to talk about Double-Entry bookkeeping, a practice still in use today. These rules of accounting allow for the systematic documenting of financial transactions. The three golden rules of accounts are the rules that regulate accounting information. ![]() The double entry accounting system is used here. ![]() Knowing which accounts should be credited and which should be charged is vital. In accounting, every transaction consists of two entries: debit and credit. Financial accounting includes more than just bookkeeping.
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