Riaz Academy
Definition of Accounting
Many authors have defined the term “Accounting” in different ways. There is difference of opinion among the authors as to its precise definition as the term accounting is so broad that it is difficult to give a precise definition. However, several possible definitions are given below:
1. “The act of collecting, processing, reporting, analyzing, interpreting and projecting financial information”.
2.“The system of providing quantified information about an organization to people who need such information.”
3.“The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.”
Of all the definitions available the most accepted is the one given by the American Institute of
Certified Public Accountants Committee, according to it:
“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.”
Analysis of Definition
An analysis of the definition will enable us to have a thorough idea of the functions of accounting. The salient features of the definition are:
1. CONNECTED WITH A MONETARY EVENT OR TRANSACTION:
Accounting must be in relation to a monetary event or transaction and the event or transaction must be measurable in terms of money. In other words, no accounting is possible for an event or transaction which is not measurable in terms of money, e.g. passing an examination, delivering lecture in a meeting. Winning a game etc. These are events no doubt, but since these are not measurable in terms of money. There is no question of their accounting.
2. TRANSACTIONS ARE PROCESSED IN THREE DIFFERENT STAGES:
a) Recording: In the first stage the transactions are recorded chronologically in the books of accounts.
b) Classifying: In
the second stage
the transactions of the
same or similar
nature are classified
and recorded separately.
the second stage
the transactions of the
same or similar
nature are classified
and recorded separately.
c) Summarizing: In the third stage all the necessary date and information are summarized on the basis of classified record of transactions and communicated to management and other interested persons.
d) Interpretation: In order to assertion the true position of a concern all the accounting data and information relating to it are analyzed and interpreted.
All the above functions are performed
on the basis of certain well-defined and well-coordinated rules and
principles. An accountant must be
familiar with all these rules and principles.
In accounting we will study all these rules and principles.
on the basis of certain well-defined and well-coordinated rules and
principles. An accountant must be
familiar with all these rules and principles.
In accounting we will study all these rules and principles.
