What is Accounting
Accounting is an information science used to collect, classify, and manipulate financial data for organizations and individuals.Accounting is instrumental within organizations as a means of determining financial stability. Accountants are responsible for determining an organization’s overall wealth, profitability, and liquidity. Without accounting, organizations would have no basis or foundation upon which daily and long-term decisions could be made. The budgets for marketing activities, profit reinvestment, research and development, and company growth all stem from the work of accountants. Accounting is one of the oldest and most respected professions in the world, and accountants can be found in every industry from entertainment to medicine.
In double entry bookkeeping system of accounting all the accounts can be classified either as :
a) Personal,
b) Real or
c) Nominal
Three golden rules guide the principle of debit or credit, as per the nature of the account, of the impugned transaction.
These three rules are:
1.In case of personal accounts:
Debit The receive
Creditthe giver
2. In case of real accounts
Debit what comes in
Credit what goes out
3. In case of personal accounts nominal a/c
Debit all expenditure and losses
Credit all the income and gains
The beauty of the above three rules is: they complement each other.
For example: if, in a transaction where one part involves a Real account and the other part is a personal or a nominal account still all these rules hold good. Hence in themselves they can govern any kind of accounting entry.
As the business environment is becoming more complex, more and more complex transactions are coming into the public domain. ERP packages like SAP have brought about new paradigms into the domain of accounting with their concept of dummy accounts etc.
However, pertinent to say, all those will still have to fall within the four-walls (or are there six?) of these three rules.
