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What Is Accounting

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7 views2 pages

What Is Accounting

lecture notes

Uploaded by

Noor Fatima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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American Institute of Certified Public Accountant (AICPA)

A professional accounting organization of certified public accountants that


engages in a variety of professional activities, including establishing auditing
standards for private companies, conducting research, and establishing
industry-specific financial reporting standards.
According to AICPA
"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 financial character, and interpreting the results
thereof."
Accounting is considered an art because it requires the use of skills and
creative judgment. One has to be trained in this discipline to be able to perform
accounting functions well.
Accounting is also considered a science because it is a body of knowledge.
However, accounting is not an exact science since the rules and principles are
constantly changing (improved by standard-setting bodies).
2. Accounting involves interconnected "phases"
Recording pertains to writing down or keeping records of business transactions.
Transactions are recorded in books of original entry (i.e. Journal). Books of
original entry also referred as books of prime entry.
Classification is the process of grouping one nature transactions at one
place. Transactions are classified in books of final entry (i.e. ledger).
The process of transferring information from books of original entry (i.e.
Journal) to books of final entry (i.e. ledger) called posting.
Once they are classified, information is summarized into reports which we call
financial statements.
3. Concerned with transactions and events having financial character
For example, hiring an additional employee is qualitative information with no
financial character. Hence, it is not recorded. However, the payment of salaries,
acquisition of an office building, sale of goods, etc. are recorded because they
involve financial value.
4. Business transactions are expressed in terms of money
They are assigned amounts when processed in an accounting system. Using
one of the examples above, it is not enough to record that the company paid
salaries for April. It must include monetary figures – say for example, $20,000
salaries expense.
5. Interpreting the results
Interpreting results is part of the phases of accounting. Information is useless
if they cannot be interpreted and understood. The amounts, figures, and other
data in the financial reports have meanings that are useful to the users.
By studying the definition alone, we learned some important concepts in
accounting. It also gave us an idea of what accountants do.
The simple things we do and encounter everyday can actually be related to some
level of accounting. You make budgets, count change and check the receipts
from the supermarket. You may also have listed things you spent your money
on at one point in your life.
We are surrounded by business – from managing our own money to seeing profit
statements of big corporations. And where there is business, there sure is
accounting.
“Accounting is the art of measuring, interpreting and communicating the
results of economic activities of an entity”
Primary function of Financial Accounting is to provide information to the
external users, For example,
Shareholders
Prospective investors
Government
Lenders
Customers
The information is communicated to through
Income statement
Balance Sheet
Cash flow statement

Whether financial accounting is a mean or an end?

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