Functions of Accounting

Functions of Accounting :

1. Identifying

Identifying the business transactions of a financial character from the source documents such as invoice, agreements, cash memos etc. and measure them in terms of money.

2. Recording

The next function of accounting is to keep a systematic record of all business transactions, which are identified in chronological order of their occurrence in the journal or subsidiary books.

3. Classifying

Classification of the recorded business transactions so as to group the transactions of similar type at one place. i.e., in ledger accounts. In order to verify the arithmetical accuracy of the accounts, trial balance is prepared.

4. Summarising

The classified information available from the trial balance is used to prepare profit and loss account and balance sheet in a manner useful to the users of accounting information.

5. Analysing

It establishes the relationship between the items of the profit and loss account and the balance sheet. The purpose of analysing is to identify the financial strength and weakness of the business. It provides the basis for interpretation.

6. Interpreting

It is concerned with explaining the meaning and significance of the relationship so established by the analysis. Interpretation should be useful to the users, so as to enable them to take correct decisions.

7. Communicating

The results obtained from the summarised, analysed and interpreted information are communicated to the interested parties.