Accounting is the recording of financial transactions along with storing, Sorting, Retrieving, Summarizing, and presenting the results in various reports and analyses. Accounting is also a field of study and profession dedicated to carrying out those tasks.
According to Bierman and Drebin___ Accounting may be defined as identifying, Measuring, Recording, and communicating financial information.
American Institute of Certified Public Accountants___ Accounting is the art of recording, classifying, and summarizing in a significant manner and terms of money, transactions, and events which are, in part at least, of a financial character and interpreting the results thereof.
Basic Components of Accounting
- Recording: The primary function of accounting is to make records of all transactions that the firm enters into. For recording, the accountant maintains a set of books. Their procedures are very systematic. Nowadays, the computer has been deployed to automatically account for transactions as they happen.
- Summarising: Recording of transactions creates raw data. Sentences of road 8000 of little used to in organization for decision making. Pages and pages of raw data are of little use to an organization for decision making. For this reason, the accountant classifies data.
- Reporting: Management is answerable to the investors about the company’s state of affairs. The operations that are being financed with the money of owners, need to be periodically updated to them. For this reason, there are periodic reports annually summarizing the performance of all four quarters which are sent to them.
- Analyzing: Lastly, accounting entails analyzing the result. After results have been summarized and reported, a meaningful conclusion needs to be drawn. Management must find out its positive and negative points. Accounting helps in doing so utilizing comparison. It is common factors to compare Profit, Cash, Sales, and Assets, etc. with each other to analyze the performance of the business.
- Maintain full and systematic records of business transactions.
- Ascertain the profit or loss of the business.
- To know the financial position of the business.
- To provide information for legal and tax purposes.
- Review Business policies in the light of the record.
- To have important information for legal and tax purposes.
- Find the total expenses and profit of the firm.
Accounting is a Science or Art?
Accounting is a Science: Accounting has its own principles holes and techniques. Based on these principles of injections recorded systematically to know the results of a business. That’s why it is regarded as a science.
Accounting is an Art: Every businessman records a business transaction in the books of accounts as per rules, according to the nature of the business, and determines the results after analyzing, so it’s an art. Thus it is clear from the above discussion that accounting has the elements of both science and art.