Accounting is the art of conveying financial information about a business unit for shareholders and managers etc. Accounting also knows ‘business language’. In Hindi, the words ‘लेखाविधि’ (account low) and ‘लेखाकर्म‘ (accounts) are also used in ‘Accountancy’. So, the question is – What is Accounting? Meaning and Definition. Also learn, very helpful for economics, What is the Economics of Development?
Understanding and Learn, What is Accounting? Meaning and Definition!
Accountancy is the branch of mathematical science which is useful in finding out the reasons for success and failure in business. The principles of accountancy are applicable to business units on three divisions of practical arts, namely, accounting, bookkeeping, and auditing.
Meaning of Accounting!
Account’s systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities. Accounting is one of the key functions of almost any business; it may handle by a bookkeeper and accountant at small firms or by sizable finance departments with dozens of employees at large companies.
Definition of Accounting!
Smith and Ashburn presented the above definition with some improvement. According to him, accounting is mainly the science of recording and classification of business transactions and events of financial nature and it is the art of analyzing, analyzing and analyzing the important summaries of those transactions and events, and communicating the results to those individuals who have to make decisions.
According to this definition, the account’s both science and art. But it is almost complete science, without a complete science.
Practice and body of knowledge concerned primarily with:
- Methods for recording transactions,
- Keeping financial records,
- Performing internal audits,
- Reporting and analyzing financial information to the management, and
- Advising on taxation matters.
It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and owners’ equity.
Accounting provides information on the:
- Resources available to a firm,
- The means employed to finance those resources, and
- The results achieved through their use.
Meaning and definition of accounting!
The size of the modern business has become so wide that it contains hundreds of thousands, thousands of business and billions of business transactions. It is impossible to handle business ventures by remembering the details of these transactions.
Therefore, the orderly record of these transactions is kept, their ordering knowledge and experimentation are known accountancy only. The practical form of accountancy can also know to account.
According to the AICPA (American Institute of Certified Public Accountants) accounting terminology, Bulletin states that;
“Accounting is the effect of writing, classifying and summarizing the behaviors and events that are at least partly of financial nature, effectively And the art of interpreting their results.”
According to this definition, accounting is an art, not science. This art is using for the recording, classification, condensation, and interpretation of scalable behaviors and events in the currency of the financial nature.
Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was establishing the Italian mathematician Luca Pacioli in 1494.
Accounting, which is known as the “language of business”, There are many quotations like “A pen is mightier than the sword but no match for the accountant” by Jonathan Glancey which tell us about the power and importance of accounting.
The textbook definition of accounts states that it includes recording, summarizing, reporting and analyzing financial data. Let us try and understand the components of accounting to understand what it really means:
#Recording!
The primary function of accounting is to make records of all the transactions that the firm enters into. Recognizing what qualifies as a transaction and making a record of the same is call bookkeeping.
Bookkeeping is narrower in scope than accounting and concerns only the recording part. For the purpose of recording, accountants maintain a set of books. Their procedures are very systematic. Nowadays, computers have deployed to automatically account for transactions as they happen.
#Summarizing!
Recording of transactions creates raw data. Pages and pages of raw data are of little use to an organization for decision making. For this reason, accountants classify data into categories. These categories are defined in the chart of accounts. As and when transactions occur, two things happen, firstly an individual record is made and secondly, the summary record is updating.
For instance, a sale to Mr. X for Rs 100 would appear as:
- Sale to Mr. X for Rs 100
- Increase the total sales (summary) from 500 to 600
#Reporting!
Management is answerable to the investors about the company’s state of affairs. The owners need to periodically update the operations that are financing with their money. For this reason, there are periodic reports which are sent to them.
Usually, the frequency of these reports is quarterly and there is one annual report which summarizes the performance of all four quarters. Reporting is usually done as financial statements. These financial statements are regulating by government bodies to ensure that there is no misleading financial reporting.
#Analyzing!
Lastly, accounting entails conducting an analysis of the results, After results have to summarize and report, meaningful conclusions need to draw. Management must find out its positive and negative points, Accounting helps in doing so by means of comparison. It is common practice to compare profits, cash, sales, assets, etc with each other to analyze the performance of the business.
Reference
1. Meaning – //www.investopedia.com/terms/a/accounting.asp
2. Definition – //www.businessdictionary.com/definition/accounting.html
3. Meaning and Definition – //www.managementstudyguide.com/what-is-accounting.htm
4. Photo Credit URL – //downsaccounting.com.au/wp-content/uploads/2016/02/accounting.jpg
