What is Financial Accounting, Objectives of Accounting, Limitations of Accounting, Role of Accounting. But when, where and how the process of accounting practices exactly started is hot very much clear. The Double Entry System is a recognized and generally accepted system all over the world and till date this system is being used widely with its basic principles unchanged. On the basis of these basic principles the accountants of modem age have established a scientific accounting system.
Accounting process prepares financial reports and investigates it for making decision making easier. So we can say; accounting is be defined as information system which maintains the process of identifying and measures the quantitative financial activities and communicate these financial reports to the decision makers or to the interested users of any organization. Accounting is just a tool to measure the financial position of any entity involving on economic activity. Accounting is an information system that recognizes, registers and communicates the monetary events of an economic entity.
With the development of technology the implication of Accounting has achieved a new shape, one example, is to keep accounts mechanically. Recently with the extensive use of computer accounting tasks have created a new arena. The Accounting degree program provides students with basic and specialized accounting skills – auditing, cost, taxes, governmental nonprofit, and computerized bookkeeping. Core skills include an ability to perform arithmetic computations quickly, organize complex data and follow generally accepted accounting procedures. Thus, for the purpose of accounting, establishing an accounting entity is important.
According to US GAAP (Generally Accepted Accounting Principles), the business or the organization has its own distinct identity and is separate from the owners and other businesses. An accounting entity is established so that the organization’s transactions are recorded separately by the accountant. This separation of the expenses is a part of the accounting ethics and is also necessary for smooth functioning of the organization.
In simple words, accounting entity separates one business unit from another and also separates the business and the organization from the owners. The accounting entity principle states that even when the business is owned by a sole proprietor, his/her personal dealings and transactions have to be kept separately from those of the business. The accounting entity or legal entity gives a separate legal identity to the business.