0MEANING: The process of accounting starts with identifying transactions and events of a financial character and recording them in books of accounts; this will be done in primary books(Journal). After the recording is done, the next step is to classify the same, which will be done in secondary books (Ledger). A point to be noted here is that not every transaction or event in the business is recorded in books of accounts; only the transaction or event with financial character is recorded. E.g., A person visiting the store is not recorded. But, if the same person purchased something upon which the business is earning income, it would be recorded in its books of accounts as sales Income. In Ledger, all the transactions & events are classified based on nature (Income, Expense, Asset & Liability). They are Summarised in the Profit & Loss Account and Balance Sheet.
The numbers/figures summarised in the earlier step will not help anyone unless they are Interpreted and Analysed by establishing the relationship between the Items of P&L and the Balance Sheet. It will enable the stakeholders(Investors, Employees, Lenders, Suppliers, Customers, government etc.,) to make meaningful decisions about the business entity's financial position and performance.
With the changing business conditions and diversification of ownership & management, accounting doesn't end with InterpretingInterpreting. Communicating the accounting results also is gaining importance, and it is considered part of accounting.
Hence procedure of Accounting involves recording, classifying, Summarising, Analysing, Interpreting and communicating.
