Any business activity, be it manufacturing, servicing or trading, involves monetary transactions. At the end, if the total money received is more than the total money spent, the business is said to have generated a ‘surplus’ or `profit’. If it is otherwise, the business is said have been in ‘deficit’ or `loss’. Every business intends to generate a surplus or profit.
Therefore, the promoter(s) is/are always interested in knowing the outcome of the economic activity. Several transactions take place in the course of business.
To remember all of them is almost impossible. A business therefore, needs to record all such transactions to find out the outcome of the business activity. A methodical and systematic science has been developed which helps the promoter record all economic transactions properly and know the outcome of the business dealings. This science is called “Financial Accounting.”
Accounting is a name given to the system which measures, records, analyses and reports the effect of business transactions and events taking place in a business enterprise. Since such reporting is in financial units, the system is also known as financial accounting.
It has been defined as the art and science of recording business transactions in a methodical manner so as to show
the true state of affairs of a business at a particular time.
the surplus or deficiency, which has accrued during a specified period.