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:
1.
"The act of collecting, processing, reporting, analyzing, interpreting and projecting financial information."
2.
"The system of providing of 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 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:
1. Connected with a money event or transaction.
2. 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.
1.
"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.
2.
"Bookkeeping is the recording branch of accounting." - Encyclopaedia Britannica.
3.
"Bookkeeping is the art of recording in books of account the monetary aspect of commercial or financial transactions."
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