The accounting process also involves analyzing and interpreting the information already recorded in the books of accounts so as to give a clear picture of the financial status of the organization or the business to the management. .
This is done by preparing what is called as Financial Statements. The financial statements - (the profit and loss statement and the balance sheet) is made to summarize company financial information. This is in two forms:.
Profitability Statement: The profit and loss statement or the profitability statement reports the profit (or surplus) that has been made during a given period and how it was obtained.
Balance Sheet: The balance sheet is prepared at the end of a period to show the assets of the entity, its debts, and the owner's claims on the entity. It gives an indication of the financial position at a specific date. In addition, it sums up the company's net income and retained earnings in the business and also summarizes the company's cash receipts and payments during the accounting period.
Therefore book keeping does not need any expertise and can be done by any layman with minimum knowledge whereas accounting is more complex in nature and the prerequisite is professional training. .
Streams of Accounting:.
The accounting process is complex and the role of accounting information within an organization is at the very core of running a successful business. Thus we can say that accounting can be seen as multifaceted activity which not only records and classifies information, allocates cost and also provides input to the decision making process of the enterprises. With this context we can say that accounting is split into three categories:.
Financial Accounting.
Financial accounting can be broadly classified as that part of accounting system that tries to meet the needs of the various external user groups. Users of financial accounting information include current and prospective stockholders, lenders, unions, consumer groups, government agencies etc.
