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Meaning of Accounting

Accounting is defined as "The art of recording, classifying and summarizing in terms of money transactions and events of a financial character and interpreting the results thereof "

For understanding this definition of accounting
Accounting is the art of recording, classifying and summarizing in terms of money transactions and events of a financial character, and Interpreting the results thereof.

The American Accounting Association (AAA) defined accounting as 'the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information'.

Following are the relevant aspects of definition
  1. Economic Events:
    Economic Events in Business organizations consists of transactions which are happened in the business entity.
  2. Identification, Measurement, Recording and Communication:
To identify events which are to be recorded

In involves of selecting only those events which are financial in nature and relate to his business

Business transaction and events are evaluated to decide whether it has to be recorded in books of accounts.

Transactions like value of human resources, changes in managerial policies, quality of the product cannot record in accounts in spite of their importance to the business.

All business transactions are Measured and expressed in terms of money.

The Money Measurement excludes all business transactions and events which cannot be measured in terms of Money.

i.e. Quality of the product, working conditions are excluded in the books of accounts.

Once the business transactions are identified and measured in financial terms, these are recorded as and when it occurs in Chronological order.

Every entry recorded has to be supported by documentary evidence and is made available as and when required.

The business transactions are identified, measure and recorded in order to supplies appropriates information to different interested groups such owners, creditors, employees, tax authorities, and government.
  1. Organization:
    It refers to business enterprise such as sole-proprietary concern, partnership firm, Co-operative society, company, local authority, Municipal corporation or any other association of persons.
  2. Interested users of Information:
    Accounting supplies appropriate information to different interested groups both internal and external.
    An internal user includes- owners, management, employees.
    An external user includes- Government, consumers, creditors & financiers, investors, Tax authorities, and Research Scholars.

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