PURPOSES OF ACCOUNTING AND THE FUNDAMENTALS OF THE DOUBLE-ENTRY SYSTEM
Accounting may be defined, in a elementary way, as the systematic process of recording, classifying, summarizing, interpreting, and analyzing financial information for decisión making and for future reference, regarding the economic activity of an organization.
Accounting performs several important tasks:
· Recording daily business transaction in a significant manner and in terms of money.
· Classifying the recorded information.
· Summarized the recorded and classified information.
· Interpreting and analyzing the recorded information.
The accounting process is based upon the following five fundamental elements:
ASSETS- Everything of value a firm owns.
LIABILITIES- The debts owned by a firm.
OWNER`S EQUITY- The economic rights or equities of the owner or owners of a business.
REVENUES- The products of the business.
EXPENSES- The cost incurred to produce revenues.
The relationship between the fundamental elements is shown by the accounting equation:
Assets = Liabilities + Owner`s + Revenues - Expenses
