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Most common accounting definition is “Accounting is the language of the business”. Language is a way to communicate ideas or information, so in this way accounting is considered a way or path in business studies in order to communicate different aspects of business financial matters. For instance, a manager says that his/her organization gain profit, so all respondents are easily understand that his organization get some thing in the form of money/value. In this example the word profit is a term of business language.

Accounting is the system that measures and records accounting transactions, processes and convert information into useful financial reports, and communicates the results to the decision makers. People often use accounting information in one form or another in their jobs and personal life. The better one understands the accounting language, the better he or she can use the accounting information to make effective business decisions and to evaluate the impact of business strategies and decisions on the economic status of a company.

accounting definition

Another accounting definition, is the process of collecting, recording, classifying, reporting, analyzing and interpreting financial data to meet the information requirements of the various users, concerned with the operation of a business both internally (within the business) and externally (outside of the business).

Accounting has evolved from a single-entry record-keeping system, dating from around 4000 BC and covering ownership of property and transactions between parties, to the double entry accounting system used by businesses today.  

 

>> Read Accounting Basics MCQs.

  Definition of Accounting

Following are different definition of accounting.

 

American Institute of Certified Public Accountants (AICPA)

According to American Institute of Certified Public Accountants (AICPA):

Accounting is an 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 a financial character, and interpreting the results thereof…

 

Accounting Principles Board (APB)

Accounting Principles Board (APB) defined accounting in the following words:

Accounting is a services activity. Its function is to provide quantitative information primarily financial in nature, about economic entities that is intended to be useful in making economic decisions in making reasoned choices among alternative courses of action…

 

American Accounting Association (AAA)

American Accounting Association (AAA) defines accounting, “as the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by the use of information 

 

>> Read Accounting Principles.

 What is accounting?

Accounting may be defined as:

  • It is recording and classification of monetary transactions in a systematic and logical fashion.
  • At appropriate intervals, the individual transactions are summarized in order to give an overall picture.
  • Preparation, presentation and interpretation of financial statements in order to assess financial position at a given date and performance over a period.
  • The monetary forecast of future economic activities arising from the alternative planned courses of action.
  • Accounting information can be the basis for planning and decision making.
  • Accounting is a means to an end and not an end in itself.

In other words, accounting is systematic process of recording, classifying and summarizing economic event in terms of money in order to facilitate economic decision makers. So in this point of view this subject is a sequence of different steps in order to produce information which facilitate in the way of business decisions.

 

>> Read Users of Financial Statement.

Previous Lesson: Accounting Basics

Next Lesson: Types of Accounting

References

Sehgal, A., & Sehgal, D. (n.d.). Advanced Accountancy (Vol. I & II). New Delhi: Taxmann Publication Pvt. Ltd.

Shukla, M. C., Grewal, T. S., & Gupta, S. C. (2008). Advanced Accountancy (Vol. I & II). New Delhi: S Chand & Co.

Shukla, M. C., Grewal, T. S., & Gupta, S. C. (2008). Corporate Accounting. New Delhi: S. Chand and Co.

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