BASIC ACCOUNTING
Meaning of Accounting
In 1941, The American Institute of Certified Public Accountants (AICPA)
had defined accounting as the art of recording, classifying, and
summarising in a significant manner and in terms of money,
transactions and events which are, in part at least, of financial
character, and interpreting the results thereof’. With greater economic
development resulting in changing role of accounting, its scope,
became broader. In 1966, the American Accounting Association
(AAA) defined accounting as ‘the process of identifying, measuring and
communicating economic information to permit informed judgments
and decisions by users of information’.
In short, accounting is a system of collecting, classifying, summarizing,
analyzing and reporting financial information about a firm.
OBJECTIVES OR FUNCTIONS OF ACCOUNTING
An analysis of the above definition bring out the following functions of
accounting
1. Recording: this is the basic function of accounting, it is essentially
concerned not only with ensuring that all business transaction of a
financial character is recorded but also they are recorded in an orderly
manner.
2. Classifying: classification is associated with a systematic analysis of
recorded data with a view to group transaction or entries of one nature
at one place. It is performed in ledger.
3. Summarizing: this involves presenting the data in a manner which is
understandable and useful to the internal as well as external end users
, of accounting statement. This process leads to the preparation of trial
balance, income statement and balance sheet.
4. Dealing with financial transactions: Accounting records only those
transactions and events in terms of money and money’s worth which are
of financial character. Other transactions are not recorded in the books of
accounts. It also helps in ascertaining the profitability position of the
business.
5. Analyzing and interpreting: This is the final function of accounting.
The recoded financial data is analyzed and interpreted in a manner that
will enable the end user to make a meaningful judgment about the
financial condition and profitability of the business operations. Thus it
also facilitate decision making. It helps in evaluating the financial
position of the firm.
6. Communicating: The accounting information after meaningful
analysis and interpretation has to be communicated in proper form and
manner to the interested parties.
FEATURES OR CHARACTERISTICS (NATURE) OF ACCOUNTING
The following are the salient features or characteristics of accounting:
1. Accounting is an art.
2. Accounting is a science.
3. Accounting is the art of recording the transactions in the books of
accounts.
4. Accounting records only those transactions and events which are of
financial character.
5. Accounting classifies the recorded transactions in a systematic
manner.
Meaning of Accounting
In 1941, The American Institute of Certified Public Accountants (AICPA)
had defined accounting as the art of recording, classifying, and
summarising in a significant manner and in terms of money,
transactions and events which are, in part at least, of financial
character, and interpreting the results thereof’. With greater economic
development resulting in changing role of accounting, its scope,
became broader. In 1966, the American Accounting Association
(AAA) defined accounting as ‘the process of identifying, measuring and
communicating economic information to permit informed judgments
and decisions by users of information’.
In short, accounting is a system of collecting, classifying, summarizing,
analyzing and reporting financial information about a firm.
OBJECTIVES OR FUNCTIONS OF ACCOUNTING
An analysis of the above definition bring out the following functions of
accounting
1. Recording: this is the basic function of accounting, it is essentially
concerned not only with ensuring that all business transaction of a
financial character is recorded but also they are recorded in an orderly
manner.
2. Classifying: classification is associated with a systematic analysis of
recorded data with a view to group transaction or entries of one nature
at one place. It is performed in ledger.
3. Summarizing: this involves presenting the data in a manner which is
understandable and useful to the internal as well as external end users
, of accounting statement. This process leads to the preparation of trial
balance, income statement and balance sheet.
4. Dealing with financial transactions: Accounting records only those
transactions and events in terms of money and money’s worth which are
of financial character. Other transactions are not recorded in the books of
accounts. It also helps in ascertaining the profitability position of the
business.
5. Analyzing and interpreting: This is the final function of accounting.
The recoded financial data is analyzed and interpreted in a manner that
will enable the end user to make a meaningful judgment about the
financial condition and profitability of the business operations. Thus it
also facilitate decision making. It helps in evaluating the financial
position of the firm.
6. Communicating: The accounting information after meaningful
analysis and interpretation has to be communicated in proper form and
manner to the interested parties.
FEATURES OR CHARACTERISTICS (NATURE) OF ACCOUNTING
The following are the salient features or characteristics of accounting:
1. Accounting is an art.
2. Accounting is a science.
3. Accounting is the art of recording the transactions in the books of
accounts.
4. Accounting records only those transactions and events which are of
financial character.
5. Accounting classifies the recorded transactions in a systematic
manner.
