INTRODUCTION TO ACCOUNTING
NATURE AND PURPOSE OF ACCOUNTING
Accounting is considered the language of business. It has evolved
throughout the years as information needs changed and became more
complex. After finishing this article, the reader should be able to have a
general understanding about accounting, be acquainted with the different
definitions, know the different types of information found in accounting
reports, and know the different uses of accounting information.
Some say that accounting is a science because it is a body of knowledge
which has been systematically gathered, classified, and organized. It
could be influenced by a lot of factors, specifically by economic, social
and political events. Some say that accounting is an art because it
requires creative skill and judgment. Furthermore, accounting is also
considered as an information system because it is used to identify and
measure economic activities, process the information into financial
reports, and communicate these reports to the different users of
accounting information.
To further understand what accounting is, we must take a look at the different definition
Accounting as an
Accounting as a Science Accounting as an Art
Information System
Accounting is the art of recording Accounting is a service
Accounting is the process of
(journalizing), classifying (posting to activity, which functions to
identifying, measuring, and
the ledger), summarizing in a provide quantitative
communicating economic
significant manner and in terms of information, primarily
information to permit
money, transactions and events which financial in nature, about
informed judgment and
are, in part, at least of a financial economic entities that is
decisions by users of
character, and interpreting the results intended to to be useful in
information.
thereof to interested users. making economic decisions
The first definition emphasizes the following:
Identifying - in accounting, this is the process of recognition or
non-recognition of business activities as accountable events.
Stated differently, this is the process which determines if an event
has accounting relevance.
, Measuring - in accounting, this is the process of
assigning monetary amounts to the accountable events.
Communicating - As we could notice with the above definitions, one main
similarity between the three is the impact of communication. In order to be
useful, accounting information should be communicated to the different
decision makers. Communicating
accounting information is achieved by the presentation of different financial
statements.
The second definition emphasizes the following:
Recording - The accounting term for recording is journalizing. All
the accountable events are recorded in a journal.
Classifying - The accounting term for recording is posting. All
accountable events that are recorded in the journal are then
classified or posted to a ledger.
Summarizing - the items that are journalized and posted are
summarized in the five basic financial statements.
The third definition emphasizes that accounting is a service activity and
that Information provided by accounting could be classified into 3
types:
Quantitative information - this is information that is
expressed in numbers, quantities or units
Qualitative information - this is information that is expressed in
words
Financial information - this information is expressed in terms of
money
Therefore, given the definitions, accounting is a service activity that is
all about recording, classifying and summarizing accountable events in
order to communicate quantitative, qualitative, and financial economic
information, to different users in order to make relevant decisions.
OBJECTIVES OF ACCOUNTING
The objectives of accounting can be given as follows:
Systematic recording of transactions - Basic objective of
accounting is to systematically record the financial aspects of
business transactions i.e. book-keeping. These recorded
transactions are later on classified and summarized logically for
the preparation of financial statements and for their analysis and
NATURE AND PURPOSE OF ACCOUNTING
Accounting is considered the language of business. It has evolved
throughout the years as information needs changed and became more
complex. After finishing this article, the reader should be able to have a
general understanding about accounting, be acquainted with the different
definitions, know the different types of information found in accounting
reports, and know the different uses of accounting information.
Some say that accounting is a science because it is a body of knowledge
which has been systematically gathered, classified, and organized. It
could be influenced by a lot of factors, specifically by economic, social
and political events. Some say that accounting is an art because it
requires creative skill and judgment. Furthermore, accounting is also
considered as an information system because it is used to identify and
measure economic activities, process the information into financial
reports, and communicate these reports to the different users of
accounting information.
To further understand what accounting is, we must take a look at the different definition
Accounting as an
Accounting as a Science Accounting as an Art
Information System
Accounting is the art of recording Accounting is a service
Accounting is the process of
(journalizing), classifying (posting to activity, which functions to
identifying, measuring, and
the ledger), summarizing in a provide quantitative
communicating economic
significant manner and in terms of information, primarily
information to permit
money, transactions and events which financial in nature, about
informed judgment and
are, in part, at least of a financial economic entities that is
decisions by users of
character, and interpreting the results intended to to be useful in
information.
thereof to interested users. making economic decisions
The first definition emphasizes the following:
Identifying - in accounting, this is the process of recognition or
non-recognition of business activities as accountable events.
Stated differently, this is the process which determines if an event
has accounting relevance.
, Measuring - in accounting, this is the process of
assigning monetary amounts to the accountable events.
Communicating - As we could notice with the above definitions, one main
similarity between the three is the impact of communication. In order to be
useful, accounting information should be communicated to the different
decision makers. Communicating
accounting information is achieved by the presentation of different financial
statements.
The second definition emphasizes the following:
Recording - The accounting term for recording is journalizing. All
the accountable events are recorded in a journal.
Classifying - The accounting term for recording is posting. All
accountable events that are recorded in the journal are then
classified or posted to a ledger.
Summarizing - the items that are journalized and posted are
summarized in the five basic financial statements.
The third definition emphasizes that accounting is a service activity and
that Information provided by accounting could be classified into 3
types:
Quantitative information - this is information that is
expressed in numbers, quantities or units
Qualitative information - this is information that is expressed in
words
Financial information - this information is expressed in terms of
money
Therefore, given the definitions, accounting is a service activity that is
all about recording, classifying and summarizing accountable events in
order to communicate quantitative, qualitative, and financial economic
information, to different users in order to make relevant decisions.
OBJECTIVES OF ACCOUNTING
The objectives of accounting can be given as follows:
Systematic recording of transactions - Basic objective of
accounting is to systematically record the financial aspects of
business transactions i.e. book-keeping. These recorded
transactions are later on classified and summarized logically for
the preparation of financial statements and for their analysis and
