What is Accounting?

 

You probable have some idea already of what the term accounting means. It is frequently used in every day conversation to mean "answering for responsibility." Managers of business concerns are answerable to owners, creditors, labour unions and Government agencies etc. Managers of government units are answerable to chief exeutives, boards, taxpayers and others, In fact, accounting was developed by people, who are seeking better ways to gether and report useful information about organisations.

It is tempting to accpet the narrow definition of accountingthat apperars in many textbooks. According to this definition, Accounting is simply the process of identifying, measuring, reporting and communicating information to permit informed judgements and decisions by users of the information.

It probably makes sense to begin by being clear about what we mean by the term. At a very broad level, accounting can be defined as a prcoess of collecting, summarizing, anlaysing and communicating information to enable users of that information to make informed decisions.

Now watch the following video for detailed discussion:

TRANSACTIONS ARE PROCESSED IN THREE DIFFERENT STAGES:

(1) Recording:

In first stage the transactions are recorded chronologically in the books of accounts.

(2) Classifying:

In the second stage the transactions of the same or similar nature are classified and recorded separately.

(3) Summarising:

In the third stage all necessary data and information are summarised on the basis of classified record of transactions and communicated to the management and other interested persons.

(4) Interpretation:

In order to ascertain the true position of a concern all accounting data and information relating to it are analysed and interpreted.

All 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.