The American institute of certified public accountants (AICPA) has defined the financial assounting as “the art of recording, clasifying and summarising in a significant manner in terms of money transaction and events which in part, at least of a financial character and interpreting the results thereof.” American accounting asociation (AAA) defines accounting as ” the process of identifying, measuring and communication ecnomics information to permit informed judgements and decisions by users of the information”.
From the above the following attributes of accounting emerge:
- It is the art of recording business transactions:First of all financial transactions should be recorded in the journal or in the books of origional entry known as subsidiary books as and when they take place so that a complete record of financial transactions is available.
- It is the art of classifying business transactions: All entries in the journal or subsidiary books should be classified by posting them to the appropriate ledger acccounts to find out at a glance the total effect of all such transactions in a particular account.
- The trasactions or events of a business must be recorded in monetary terms: If there are certain events which cannot be measured in terms of money, they will not be recorded in financial accounting.
- It is the art of summarising financial transactions: After recording and classifying financial transactions next stage is to prepare the trial balance and final account with a view to ascertaining the profit or loss made during a trading period and the financial position of the business on a particular date.
The actual record making phase (i.e recording, classifying and summarising) of accounting is usually called book keeping. However, accounting extends for beyond the actual making of records. Accounting is concerned with the use to which these records are put, there analysis and interpretation. An accoutant should be concerned with more than the record making phase. In particular he should be interested in the relationship between the financial results and the events which have created them. He should be studying the various alternatives open to the firm, and be using his accounting experience in order to aid the management to select the best plan of action for the firm. The owners and manager of a firm will need some accounting knowledge in order that they may understand what the accountant is telling them. Investors and others will need some acounting knowledge in ordered that they may read and understand the financial statements issued by the firm and adjust their relationships with the firm accordingly. Thus accounting is a wider term and includes the recording, classifying and summarising of business transactions in term of money, the preparation of financial reports, the analysis and interpretation of these reports for the information and guidance of management.
The Purpose of accounting is to as certain profit or loss during a specified period to show financial position of the business on a particular date and to have control over the firm’s property. Such accounting records are required to be maintained to measures the income of the business and communicate the information so that it may be used by managers, owners and other parties. Accounting is a discpline which records, classifies, summarises and interprets financial information about the activities of a concern so that intelligent decisions can be made about the concern.