What is the full form of AF
AF: Accounting and Finance
AF stands for Accounting and Finance. Accounting is the language of finance used by firms or businesses to convey the financial status and condition to any person curious to know. Tangible reports are made to help translate the workings of the firm. In other words, the process that helps to summarize, analyze, record, and report the data related to the financial transactions of any firm or business is said to be accounting.
Components of Accounting
The three components of accounting are:
- Recording: Recording the various transaction made within the firm is the initial function looked forward by accounting. This can alternatively be called book-keeping (the process only concerned with recognizing and setting up the transactions as records). Few books are maintained for the purpose of recording systematically. The three different ways of recording are:
- Maintaining the records with the help of a well-planned system.
- Financial transactions are put on track.
- Presenting a final set of financial reports, by aggregating all the reports.
- Summarizing: Recorded transactions generally result in raw data, which is not important for the organizations, as they didn't play any role in decision making. Thus, recording is followed by summarizing.
- Reporting: Reports are received by the owners quarterly, and annually [summarizing all the performance] to know about the various operations happening in the firm using their money.
- Analyzing: Positive and negative points are derived by getting a conclusion.
Basic Fundamentals of Accounting
The basic fundamentals of accounting revolve around the term ALOE. The acronym, "A-L-O-E" means:
A - Assets
L - Liabilities
O E- Owner's Equity
This makes one of the basic concepts. The equation for the basic fundamental of accounting goes as
Assets = Liabilities + Owner's Equity
- Assets: Items belonging to you or items owned by you are your Assets. They can serve you in cash exchange for it, as they are corresponding to a value. Examples of assets can be a car, house, gold, etc.
- Liabilities: Whatever you owe is a liability for you. For example, a loan taken by you from a bank to buy an asset is a liability.
- Owner's Equity: Owner's Equity is the complete amount invested by someone or anyone in an organization, minus any money taken out by that person out of the organization.
Objectives of Accounting
- Maintaining Records: The spoken language of transactions is known as accounting. As we all know that the human brain has limited input capacity and it cannot store endless information thus, the charge of maintaining the records of all the transactions made within a firm is taken over by accounting.
- Profit and Loss: Profits are directly proportional to Business. Earning profits is the only concern of business. The accounting chart of profit and loss, help distinguishes whether there is a profit or loss made in the business.
- Utility of Resources: A firm and an organization function smoothly with the help of resources, as resources play a significant role. The records have the responsibility to report to the firm about the different activities taking place.
- Estimation of Financial Position: Knowing the Profit and Losses, along with the information about what he owes and how much he has to pay to debtors is also what the businessman needs and wants to know. For that reason, a statement called a Balance sheet is prepared in which all the details are recorded.
- Helps in Decision Making: Accounting procedures maintain the smooth functioning of the organization. All this information help in decision making.
What is Finance?
The process which involves raising funds or capital for any kind of expenditure is termed Finance or financing. It is also known as the process to channel different funds in various forms such as loans, credit, or invested capital to those economic entities who most need them or can put them to the most productive use possible.
History of Finance
It is in the Babylonian empire, that the earliest historical evidence of finance is recorded dated 3000 BC. The temples and palaces over the empire were used as safes for storing valuables. By 640 BC, the Lydian had started to use coin money. The use of coins began representing money in the years between 600 and 570 BCE.
Areas of Finance
Development of specialized institutions in three broad areas in finance has taken place:
- Business finance - This deals with the manager's steps taken in order to increase the value of the firm, the capital structure of corporations, the sources of funding and the tools used to allocate financial resources. But there is a principle difference between business finance and managerial finance.
- Personal finance - Personal finance can be defined as "the planning which is mindfully done for spending and saving money in various forms, keeping the possibility of future risk in consideration. This type may involve payments done for real estate, education, cars, investing, buying insurance, and saving for retirement. It may also include the loan or other debt-related repayment.
- Public finance - The finance related to sub-national entities, sovereign states, and related public entities is described as Public finance. It generally incorporates a strategic perspective on a long-term basis regarding the investment decisions makes affect the public entities. Public finance is primarily concerned with:
- Identifying required expenditures of a public sector entity
- Entity's revenue source(s)
- Process of budgeting
- Municipal bonds or sovereign debt issuance, for public works projects.