Why You Need an Accountant and How to Pick One

Every business entity be it a sole proprietor , company, partnership etc. do numerous of economic transactions everyday.

So what he/she does is maintain a register recording every transaction (called journal entry recording) of his business so that he can refer this register for any business decision.

Also this register (journal entries) is further sorted in the form of ledger accounts so that we can see transactions of similar nature under one head, thus increasing our convenience of reference of business accounts information. This step is called classification.

Now this process is done continuously and simultaneously with the business operations.

Financial terms

Every business entity wants to know how much profit it made (called financial profitability) and also how much assets he possess and how much amount he owe to the outsiders(called financial position).

So a profit and loss account is prepared to determine profitability and a balance sheet is prepared to determine financial position. This step is called summarisation.

Now such information prepared for a financial period(usually 1 yr) holds very much importance in making numerous business decisions and financial decisions.

This information is relevant not only for the owner but for various outside parties as well such as supplier, debtors, creditors, governement, potential investors, auditors etc. So such information is communicated to the above mentioned parties. This step is called is Communication.

In a nutshell

Accounting is systematic (since based on priciples called accounting principles) process of recording(journal entries), classifying (legder accounts making), summarising(balance sheet and profit and loss account), and communicating (to various stakeholders) financial information.