Accounting is the study of all the financial activities of a person or organization that can be properly recorded in the book of accounts, and its exact result can be determined at the end of a certain period.
Accounting discusses the methods of recording, classifying, and interpreting financial transactions of a business. As a result, changes in the financial position of the business organization can be detected and this information will help the business organization to make various decisions. Various accounts and reports are prepared using the knowledge of accounting, through which the financial condition of the organization is known. That is why accounting is called the “language of business”.
Definition of Accounting by Different Authors
A. W. Johnson states, “Accounting may be defined as the collection, compilation and systematic recording of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports and the use of these reports for the information and guidance of management.”
Accounting Standards Council (ASC), “Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.”
According to the AICPA(American Institute of Certified Public Accountants), “Accounting is the art of recording, classifying and summarizing in a significant manner and terms of money, transactions and events, which are, in part at least, of a financial character and interpreting the result thereof.”
According to the AAA (American Accounting Association), “Accounting refers to the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”
Weygandt, Kieso, and Kimmel defined, “Accounting is an information system that identifies records and communicates the economic events of an organization to interested users.”
Bierman and Drebin Stated that “Accounting may be defined as identifying, measuring, recording and communicating of financial information.”
So, accounting is an information system process in which business transactions are stored, classified, financial results, and financial status are determined and analyzed to report to its users.
More definition of Accounting:
- Accounting is the scientific method of keeping daily accounts.
- Accounting is the process of identifying, documenting, and providing information to financial users.
- Accounting is a science where a person or a business organization can keep a record of their daily financial events in an orderly manner and find out about their financial condition after a certain period.
A simple definition of Accounting:
Accounting is the technique of recording transactions in a scientific way.
The following features of accounting are observed from the above discussion:
- Collecting financial transactions of the organization.
- Secured transactions are neatly recorded in the ledger.
- The data is categorized to determine the financial results.
- At the end of the specified time, the financial results are determined and the financial condition is determined.
- The information is published in the form of reports through interpretation and analysis.
Since the beginning of the exchange system in human civilization, as the number of exchanges has increased over time, it has become necessary to write it down and since then people have started keeping accounts in different ways according to their own ideas. In the evolution of time, with the expansion of trade and commerce, numerous and complex business transactions need to be documented according to well-defined policies and procedures.
Luca Pacioli, in his book ‘Summa de arithmetica, geometria, proportioni et proportionalita’, was the first to mention the formula for transcribing business transactions. Based on this the systematic journey of accounting begins in the recording of transactional transactions. Luca Pacioli, the father of modern accounting.
Two purposes of accounting are highlighted:
- The main purpose of accounting is to record financial transactions accurately in the book of accounts and it should be under the principles of accounting. If the recordings are not correct then the financial statements of the account will lose its accuracy.
- Another purpose of accounting is to determine the financial results and status of the organization. Because through accounting, apart from the calculation of income-expenditure, profit-loss, debt-debt, etc., the account of all the transactions of the organization is available.
The complex and tedious task of purchasing, selling, stocking, clearing accounts, managing human resources, and other business accounting can now be done very quickly with the help of computer software.
It is not possible to know the actual financial results and status of the organization if the transaction is not properly recorded in the ledger. Accounting is very important to know the potential income or potential expenses of a financial institution. It is very important to keep accurate accounts for future financial plans and for the implementation of those plans.