Standard Definition of Accounting

By previous blog we go through the simple explanation about what is accounting, so now we are moving forward to the definition given by the “American Institute of Certified Public Accountants”. This definition gives us very detail view about the accounting. It tell us about the Function of Accounting, which data should be account for, and objective of the accounting.

“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 financial character, and interpreting the result thereof.”

          (American Institute of Certified Public Accountants)

Function of Accounting:

    Recording, classifying and summarizing is the function of Accounting. For every business transaction and event we apply this function. How accountant will do this, let’s leave to the future discussion, for now we remember that the function of accounting is to record, classify and summarize the information.

Significant Manner:

    Accounting also gives us some sort of Manual about the functions, what should record, where it will be classify and how it will be summaries. This is Called “International Financial Reporting Standards (IFRS)” previously called “International Accounting Standards (IAS)”.

    Accountant follow this rule all over the world, it is very pretty because we can understand the account of every business not only what we are doing in business but every business which follow this standards all over the world!.

Nature of Transactions / Events:

    Accounting only deals in the information about the transactions and events which have money inflow / out flow at the time of recording or in some time in near future.

The example of Transactions and Events are Buying and Selling, Depreciation of Asset / Assets etc.

Objective of Accounting:

    The objective of Accounting is to interpret the result of all the transactions and event which was recorded, and the basis of this result the stockholder of this business can take decisions.

Stack Holders:

    There are many people or group of people, companies and government organization which is linked in somehow with the business, e.g Management of the company, employees of the company, customers and suppliers, tax agencies, regulatory authorities and general publics. Every stack holder have their own objective to the profitability of that particular business.

Conclusion:

    Accounting is to provide the basis of financial decisions to the stakeholder by following the standards.