Hi Guys, I have given here various accounting definitions useful for understanding and reference. Various authors and institutions have defined accounting in difference ways.
The American Institute of Certified public Accountants (AICPA) has defined the Financial Accounting as “ the art of recording, classifying and summarizing in significant manner in terms of money transactions and events which in part, at least of a financial character and interpreting the results thereof.”
American Accounting Association (AAA) defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information”.
So if we analyse the above accounting definitions, we can conclude the following:
- It is the art of recording business transactions: The first of step of accounting is identify the monetary transactions and events, to record the transactions in journal or in books of original entry known as subsidiary books.
- It is the art of classifying business transactions: Entry passed in journal or subsidiary books are then classified by posing them into suitable ledger account. Similar entries are grouped into one ledger account.
- The transactions or events of a business must be recorded in monetary terms: Accounting always deals with transactions having monetary effect on business. Non-monetary transactions are ignored.
- It is the art of summarizing financial transactions: After recoding transactions into different ledgers, the ledger balances are finally taken into trail balance. From trail balance profit & loss account and balance sheet is derived.
- It is an art of analyzing and interpretation of these transactions: The accounting information derived in profit & loss account and balance sheet are finally analysed by different accounting tools like ratios, percentage etc.
- The results of such anasysis must be communicated to the persons who are to make decisions or form judgements: Finally the information derived is presented to its end users like management, government etc.
Accounting is also categorized into other parts apart from financial accounting:
According to Weldon, “Cost accounting is the application of accounting and costing principles, methods and techniques in the assessment of costs and analysis of savings/or excess cost incurred as compared with previous experience or with standards”.
According to R.N Anthony, “ Management Accounting is concerned with accounting information that is useful to magement”.
According to Batty, “Management Accounting is the term used to describe accounting methods, systems and techniques which coupled with special knowledge and ability, assist management in its task of maximizing profits or minimizing losses. Management Accounting is the blending together into a coherent whole, financial accounting, cost accounting all aspects of financial management.”
Hope you have got the accounting definition and please comment for any query on it.