Introduction to Accounting

 Meaning of Accounting

Accounting is a process of identifying, measuring, recording and communicating the required information relating to the economic events of an organization to the interested users of such information. 

    In order to appreciate the exact nature of accounting, we must understand the following relevant aspects of the definition:

• Identification, Measurement, Recording and communication
• Economic Events
• Organization
• Interested Users of information 

IDENTIFICATION 

It means determining what transactions to record, i.e., to identity events which are to be recorded, It involves observing activities and selecting those events that are of considered financial character and relate to the organization.

MEASUREMENT

It means quantification (included estimates) of business transactions into financial terms by using monetary unit, viz. rupees and paise as a measuring unit. If an event cannot be quantified in monetary terms, it is not considered for recording in financial accounts.

RECORDING

Once the economic events are identified and measured in financial terms, these are recorded in books of account in monetary terms and in a chronological order. Recording is done in a manner that the necessary financial information is  summarised as per well-established practice and is made available as and when required.

COMMUNICATION

The information is regularly communicated through accounting reports. These reports provide information that are useful to a variety of users who have an interest in assessing the financial performance and the position of an enterprise, planning and controlling business activities and making necessary decisions from time to time.

ECONOMIC EVENTS

Business organisations involves economic events. An economic event is known as a happening of consequence to a business  organisation which consists of transactions and which are measurable in monetary terms.

ORGANISATION

Organisation refers to a business enterprise, whether for profit or not-for-profit motive. Depending upon the size of activities and level of business operation, it can be sole-propriety concern, partnership firms, cooperative society, company, local authority, municipal corporation or any other association of persons.

INTEREST USERS OF INFORMATION

Accounting is a means by which necessary financial information about business enterprise is communicated and is also called the language of business. Many users need financial information in order to make important decisions These users can be divided into two broad categories; internal users and external users.