Accounting can be defined as the process of maintaining financial records and estimates and using the information to make critical financial decisions. In simple words, accounting is the art of recording all business transactions and knowing the result of carrying out the business activity.
Historians claim that accounting was introduced thousands of years ago using clay tokens to keep records of crops and livestock. Over the years, it has become a sophisticated art crucial for maintaining financial stability.
In modern times, many different definitions of accounting have surfaced.
According to the American Institute of Certified Public Accountants, ‘accounting is the 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 results thereof.’
The American Accounting Association gives a somewhat similar definition of accounting, stating that it is ‘the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.’
It is also worth mentioning that accountancy is a vast field that relies on bookkeeping, auditing, and accounting principles. This should clarify a common myth that accounting and bookkeeping are the same. Accounting is a field that depends on the functioning of bookkeepers. One should always remember the basic difference between accounting and bookkeeping.
Account as a Combination of Different Fields
Learning about accounting calls for the need to have knowledge of a number of fields. The field borrows a lot from many different fields:
- Mathematics: Arithmetic ratio and proportion and many other mathematics topics contribute to the learning of accounts.
- Analysis and Forecasting: Objectives of accounting are not limited to maintaining accounts and records. But it also involves estimations and projections based on assumptions.
- Communication: Accounting also involves the art of communicating the right information in the right format to the right sets of people.
- Computers and IT: With the growing popularity of accounting software systems, the success of accounting relies on the use of these fields as well.
- Finance: Accounting makes use of principles of finance in many exercises.
What One Needs to Learn to Understand Accounting Fully?
To understand precise accounting meaning, one needs to learn about some very important aspects relevant to the field. This includes:
- Accounting principles
- Basic accounting concepts
- Accounting terminology
- Accounting exercises and practices
- Modern accounting trends
- Importance and benefits of accounting for different individuals and organizations
Accounting is truly the language of modern business setups and is of utmost importance to different groups of individuals like stakeholders, managers, business owners, and others. It is much more than the stereotypical image of accountants and accountancy. (Read What Is Accounting for Managers? for more details)
- Management Accounting – Meaning, Definition, Tools, and Limitation
- Branches of Accounting
- Difference between Financial and Management Accounting
- Accounting Information
- Bookkeeping Vs Accounting – Meaning, Differences, and Bookkeeper vs Accountant
- Advantages and Disadvantages of Different Types of Accounting