Definition: Accounting
Definition of Accounting
What is Accounting?
Accounting is the process of recording financial transactions in a bookkeeping Journal in chronological order. The business's journal provides an accounting (retelling) of the business's events over time. Financial transactions include owner investments, purchases from vendors, customer sales and loans. All of these events are recorded in the business's Journal in a similar way as to how you would record an entry in a personal journal. When a bookkeeper records a financial transaction, the bookkeeper will "make a journal entry".
In order to efficiently interpret a business's Journal entries, each journal entry is sorted into account categories. For example, if a business purchased $500 of printer paper, the printer paper could be sorted to a Supplies account. An account is just a group/category of like items.
All the account categories combined as one group is referred to as the business's General Ledger of Accounts. A simple listing of the accounts contained in the General Ledger of Accounts is called the business's Chart of Accounts. The General Ledger also gives an accounting of the business's transactions, but does so according to account categories. For example, the Supplies account would give an accounting of business supplies. Remember the word accounting means to retell a story.
Once the entries of a business's journal have been sorted to the General Ledger of Accounts, an accountant can interpret the results and create accounting financial statements that describe trends like cash flow, net profit and owner's equity.
In order to efficiently interpret a business's Journal entries, each journal entry is sorted into account categories. For example, if a business purchased $500 of printer paper, the printer paper could be sorted to a Supplies account. An account is just a group/category of like items.
All the account categories combined as one group is referred to as the business's General Ledger of Accounts. A simple listing of the accounts contained in the General Ledger of Accounts is called the business's Chart of Accounts. The General Ledger also gives an accounting of the business's transactions, but does so according to account categories. For example, the Supplies account would give an accounting of business supplies. Remember the word accounting means to retell a story.
Once the entries of a business's journal have been sorted to the General Ledger of Accounts, an accountant can interpret the results and create accounting financial statements that describe trends like cash flow, net profit and owner's equity.
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