Definition of Accounting   

Accounting is used by business entities for keeping records of their monetary or financial transactions. A businessman who invested money in his business would like to know whether his business is making a profit or incurring a loss, the position of his assets and liabilities and whether his capital in the business has increased or decreased during a particular period.

A widely accepted definition of accounting has been provided by the American Accounting Association. According to this definition accounting is the process of identifying, measuring and communicating information to permit judgement and decisions by the users of accounts. This definition implies that –

(1) there should be users of accounts who need relevant information,

(2) the information should enable the users to make judgement and decisions, and

(3) transactions and events are measured and the data are processed and then communicated to the users through accounting.

Accounting may be defined as:

• the classification and recording of monetary transactions;

• the presentation and interpretation of the results of those transactions in order to assess performance over a period and the financial position at a given date;

• the monetary projection of future activities arising from the alternative planned courses of action.

Note the three aspects considered in this definition: recording, reporting and forecasting:

 

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