ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Business Accounting: Meaning and Purposes

Updated on July 9, 2015
icv profile image

IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.

Today, business and related activities are become more significant. Even a common man can become a part of business or companies by just taking their shares. Any way many other sectors of the world participating in business activities including investors, employees, board of directors, other professionals, customers etc.

In theory, the major object for all such kind of economic activities is making profit, many persons are interesting or enthusiastic in knowing the result of their work. When we consider a modern business firm, they are actively interacting with many people. So, there occur many transactions between them economical and non- economical.

Accounting is the field of study which provides a systematic way to record the business transactions and showing the results of the business activities. Actually accounting claims a good heritage. There are many evidences for the practices of recording business transactions from the early time onwards. That practice is popularly known as ‘book keeping’. Because where only the transactions are just entered in a order. But accounting provides a systematic way for treating transactions.

Meaning and Definition of Accounting

The meaning of accounting can be said to be the way of recording of business transactions having economical in nature and by find out the result of business activities in nutshell or very briefly.

American Institute of Certified Public Accounts (AICPA) defines “ accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the results thereof”

Why Accounting?

In this section, you can learn what are the various objectives, functions and significance of accounting. When we are go through the definition given by American Institute of Certified Public Accounts (AICPA), which provides major objectives behind the accounting. Each of them is described separately as below.

Recording of Business Transactions

When we examine the activities of a business organization, where we can see two major types of transactions on the basis of their nature, they are economical and non-economical transactions. Book keeping an oldest method where the transactions are just entered in an chronological order. But in accounting not only just entering the transactions but also treating in a systematic manner on the basis of their chronological order. Journal is the first place to enter transactions, where the transactions are treated with putting a narration also. In journal entry each transaction are equally debited and credited.

Classification of Transaction or Journal Entries

When we analyze each of the business transaction, we can see some once are related to machinery, wages, rent, interest etc. So there is a requirement to classify each of them in to separate accounts. It is doing by creating Ledger accounts. Where we create separate accounts for each item like cash account, capital account, interest account, wages account etc.

Summarizing of Ledger Accounts

Surely, every business firms conducts many transactions related to cash, employees etc in an accounting year. Someone are earned and others are spent, some once creates liabilities etc. So we need to summarize each of the accounts. It can be find out by creating Ledger accounts. At the end of each financial year the balances of each account are carrying forwarded to next year. When we joined all the balance amounts together we can summarize the total credit amount and debit amount. For that we can create ‘Trial Balance’

Find out the Result of Business

Simply the ultimate goal of every business is to make profit forever. To find out profit or loss we have to close accounts at the end of each financial year. Anyhow to find out gross profit (or loss) of the business, we must prepare ‘Trading account’. Then to find out net profit (or loss) of business we should prepare ‘profit and loss accounts’.

Understand the Financial Position of the Business

The owners and other business related personalities are not only interested in know the current profit or loss but also wanted to know about the survival and future of business. For understanding the financial position of a business firm, they should prepare ‘Balance Sheet’. Balance Sheet is nothing which showing the total assets, liabilities and the capital of the business. Balance sheet enables the public to evaluate whether the business is in soundness or in weak.


    0 of 8192 characters used
    Post Comment

    • jahfar514 profile image


      4 years ago from CHEMMAD

      informative and useful hub

    • profile image

      Larry Wall 

      5 years ago

      Your Hub is very informative. I use to work for a non-profit, and my CPA and I had many discussions. From an accounting standpoint, she had to deduct depreciation from the cash balance. This was for tax purposes. We paid no taxes. Thus I wanted to know each month how much cash was available. I have been arguing with CPAs over retained earnings for years and have yet to reach an agreement. I had a great CPA at my last job, and she is still there. However, the non-profit world does differ from the for-profit world and accountants have to be able to adjust their reports so that the client understands, and the records are accurate.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)