Concept of Accounting
Definition of Accounting:
(Definition by the American Institute of Certified Public Accountants (Year 1961):)
“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 result thereof”
Definition by the American Accounting Association (Year 1966):
“The process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by the users of accounting”.
Objectives of Accounting:-
(i) Providing Information to the Users for Rational Decision-making.
The primary objective of accounting is to provide useful information for decision-making to
stakeholders such as owners, management, creditors, investors, etc. Various outcomes of business
activities such as costs, prices, sales volume, value under ownership, return of investment, etc. are
measured in the accounting process. All these accounting measurements are used by stakeholders
(owners, investors, creditors/bankers, etc.) in course of business operation. Hence, accounting is
identified as ‘language of business’
(ii) Systematic Recording of Transactions.
To ensure reliability and precision for the accounting measurements, it is necessary to keep a
systematic record of all financial transactions of a business enterprise which is ensured by
bookkeeping.
These financial records are classified, summarized and reposted in the form of accounting
measurements to the users of accounting information i.e., stakeholder.
(iii) Ascertainment of Results of above Transactions
‘Profit/loss’ is a core accounting measurement. It is measured by preparing profit and loss account
for a particular period. Various other accounting measurements such as different types of revenue
expenses and revenue incomes are considered for preparing this profit and loss account. Difference
between these revenue incomes and revenue expenses is known as result of business transactions
identified as profit/loss. As this measure is used very frequently by stockholders for rational decision
making, it has become the objective of accounting.
For example, Income Tax Act requires that every business should have an accounting system that
can measure taxable income of business and also explain nature and source of every item reported
in Income Tax Return.
Definition of Accounting:
(Definition by the American Institute of Certified Public Accountants (Year 1961):)
“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 result thereof”
Definition by the American Accounting Association (Year 1966):
“The process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by the users of accounting”.
Objectives of Accounting:-
(i) Providing Information to the Users for Rational Decision-making.
The primary objective of accounting is to provide useful information for decision-making to
stakeholders such as owners, management, creditors, investors, etc. Various outcomes of business
activities such as costs, prices, sales volume, value under ownership, return of investment, etc. are
measured in the accounting process. All these accounting measurements are used by stakeholders
(owners, investors, creditors/bankers, etc.) in course of business operation. Hence, accounting is
identified as ‘language of business’
(ii) Systematic Recording of Transactions.
To ensure reliability and precision for the accounting measurements, it is necessary to keep a
systematic record of all financial transactions of a business enterprise which is ensured by
bookkeeping.
These financial records are classified, summarized and reposted in the form of accounting
measurements to the users of accounting information i.e., stakeholder.
(iii) Ascertainment of Results of above Transactions
‘Profit/loss’ is a core accounting measurement. It is measured by preparing profit and loss account
for a particular period. Various other accounting measurements such as different types of revenue
expenses and revenue incomes are considered for preparing this profit and loss account. Difference
between these revenue incomes and revenue expenses is known as result of business transactions
identified as profit/loss. As this measure is used very frequently by stockholders for rational decision
making, it has become the objective of accounting.
For example, Income Tax Act requires that every business should have an accounting system that
can measure taxable income of business and also explain nature and source of every item reported
in Income Tax Return.
