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Accounting is a language, a system that communicates
information. It is often referred to as the language
of the business, although it is just as important in
the operation of government agencies, clubs, and
other kind of organizations.
You
probably have some idea already of what the term
accounting means. It is frequently used in every day
conversation to mean "answer for responsibility."
Managers of business concerns are answerable to
owners, creditors, labor unions and government
agencies etc. Managers of government units are
answerable to chief executives, boards, taxpayers
and others. In fact, accounting was developed by
people, who were seeking better ways together and
report useful information and organizations.
Some
type of orderly system is needed to accounting for
an organization of any size and complexity. An
accounting system is used to collect, process and
report needed data about a business, government
unit, or other type of association. Information is
usually collected, processed and reported in
financial terms, which simply means that 'money' is
the bases of measurement.
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
precise definitions. However, several possible
definitions are given below:
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"The act of collecting, processing, reporting,
analyzing, interpreting and projecting financial
information."
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"The
system of providing of quantified information about
an organization to people who need such
information."
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"The
process of identifying, measuring, and communicating
economic information to permit informed judgments
and decisions by users of information."
Of all the
definitions available the most accepted is the given by
the American Institute of Certified Public Accountants
Committee on Terminology 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." 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:
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Connected with a money event or
transaction.
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Transactions are process in
three different stages.
1. Connected with a Money 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 term of
money, e.g. passing an examination, delivering lecture
in a meeting, winning a game etc. There are events no
doubt, but since these are not measurable in
term 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.
(c) Summarizing:
In the third stage all
necessary data 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 ascertain 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.
Bookkeeping:
Bookkeeping is the art of recording monetary
transactions in the books of account in a proper
manner. The books of accounts are recorded in such a
way as will enable us to ascertain the complete and
accurate result in the least possible time with
minimum labor and cost.
Many
authors have defined the terms "bookkeeping" in
different ways.
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"Bookkeeping" means the recording of
transactions, the record making phase of
accounting (it is only a small part of the field
of accounting and probably the simplest part."
- Meigs, Johnson and Meigs.
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"Bookkeeping is the recording branch of
accounting." - Encyclopaedia Britannica.
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"Bookkeeping is the art of recording in books of
account the monetary aspect of commercial
or financial transactions." -
Northcot.
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