What is Accounting ?

An Explanation on meaning of Accounting

It is very common in human society that when any person starts a business, he/she wants to record all the financial data in written formats either using pen and paper or digital/electronic mode for proper future planning of his/her business.

When the record keeping procedure follows a systematic and chronological order which can be easily used by the business owners/users,that systematic procedure is termed as  'Accounting'.

The American Institute of Certified Public Accountants(AICPA) states/explains/defines that "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'".

The term "Accounting" can be explained by the following way for an easy understanding.

Explanation on meaning of Accounting

In the field of Accounting,mainly three sub-fields/branches are taken into consideration.

  1. Financial Accounting

  2. Cost Accounting

  3. Management Accounting

Financial Accounting:

Financial Accounting is an Accounting process, which is aimed to know the Profit and Loss and Financial Position of a Business at the end of a particular period.

Explanation :

Financial Accounting is an art and technique of

  • Recording

  • Classifying

  • Summarizing and

  • Communicating the Results

of Business Transaction and Events in a systematic and orderly manner, which are at least of a financial character and measurable by the unit of money.

More details on Art and Technique of Financial Accounting

  • Recording Phase

Preparation of documents like  Money Receipt/Credit Voucher, Payment/Debit Voucher,Purchase and Sales Invoice etc. 

Recording/Posting/Writing the transactions into Journal Book/Journal Register/Journal Proper/Books of First Entry.

  • Classifying Phase 

Posting of Recorded or journalized transactions into their respective Ledger Accounts.

  • Summarizing Phase 

Preparation of Trial Balance, Manufacturing, Trading, Profit & Loss Account and Balance Sheet etc.

This phase is popularly known as Preparation of Final Account. 

  • Communicating the Results Phase

Presentation of Summarized data in the form of Manufacturing, Trading, Profit & Loss Account and Balance Sheet etc. to the Internal and External users of Accounting.

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Location: Delhi, India

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