The very first question asked by a newbie when he comes across the endless world of Accounting. If you are reading this article, then you are at the perfectly right place. This is to equip you with the ins and outs of “What is Accounting About”? Let’s start by addressing the captioned question in depth.
Accounting is termed as the language of business. We know that we use language to exchange ideas and information. Here in accounting, we exchange and communicate monetary information. You might have a bit idea about the term accounting which means “answering for responsibility”. We have noticed that in organizations, managers are answerable to different stakeholders. Let’s look into accounting definition.
Accounting Definition
The most famous accounting definition is given by the American Institute of Certified Public Accountants Committee on Terminology. Thas is;
“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which, in part at least, of a financial character, and interpreting the result thereof”.
Importance of Accounting
From the day we are born to the day that we die, we need things to survive. It includes Physical and Emotional needs described below;
- Physical Needs: Comprises of goods of various sorts, food and shelter and clothing, etc.
- Emotional Needs: Contains need for creativity, entertainment, and education, etc.
To satisfy the above-mentioned needs people provide services in a useful manner to others. That is with an expectation to earn a reward in the form of profits. On the other hand, they also try to plan their expenditures in an economic way according to their income. There is a saying that “Cut your coat according to your cloth”
Why is this planning required?
As the needs and desires of ours are limitless as compared to our income. We know that our income is not enough to buy goods/services which are short in supply. Therefore, proper planning of expenditures helps us to make the most of our income.
Most of us do maintain records of our day-to-day economic activities to keep ourselves informed about income and expenditures. It confirms the proper need to record our financial activities in a very transparent, clear, and systematic manner. Resultantly the subject of “Book-Keeping” became indispensable.
It is all that is more necessary for organizations or a concern to record their accounts properly. At the end of the year, all the records of economic activities will be available to determine the profit/loss. Thus, without book-keeping records, it would be difficult to continue business and would meet to death in a short time. Further, if we do not prepare proper books of accounts, then it will not be possible to calculate Profit. As a result, the fair distribution of it among the owners will also be affected.
In addition, the information mandatory to make investment decisions will not be available to interested parties. For the same reason, in the case of educational institutes, hospitals, etc. the need for accounting has been recognized universally. Accounting is not only for business concerns.
So, what is accounting about? As per the accounting definition, accounting is about keeping proper records and results of financial activities. It also provides information to different stakeholders to make informed decisions. It is based on the information provided in the financial statements. And prepare by following the rules of recording, classifying, summarizing, and interpreting.
