Definition and purpose of accounting

1. Meaning of Accounting

Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions of a business to provide useful information for decision-making.

Key Points:

1. Recording

   • This is the first step and involves documenting every financial transaction in a systematic way (e.g., in journals or ledgers).

2. Classifying

   • Sorting transactions into categories such as assets, liabilities, income, and expenses to make them easier to manage.

3. Summarizing

   • Preparing financial statements like the income statement and balance sheet to show the overall performance and position of the business.