One Word, Different Meanings
Check out the different definitions of accounting.
"It is a systematic process of recording, classifying and summarizing business transactions and interpreting the results thereof to interested users."
"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."
"Accounting is a process of identifying the events of financial nature, recording them in the journal, classifying in their respective accounts and summarising them in profit and loss account and balance sheet and communicating results to users of such information"
Loren A. Nikolai et.al.
"Accounting is the process of identifying, measuring, recording, and communicating economic information to enable users to make informed judgments and decisions."
Google has provided the following definition: "Accounting is the action or process of keeping financial accounts."
"Accounting is the language of business."
Definition from Dictionary.com
"Accounting is the theory and system of setting up, maintaining, and auditing the books of a firm"
AICPA 2nd Definition
"Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions, in making reasoned choices among alternative courses of action."
Definition from Cambridge
"Accounting is the job of keeping or examining the records of money received, paid, and owed by a company or person"
"Accouting is the occupation of maintaining and auditing records and preparing financial reports for a business"
Needles, Jr., et.al.
Accounting is an information system that measures, processes, and communicates financial information about an economic entity."
3 Major Accounting Processes
The definitions above identify 3 major processes in accounting, mainly:
- Recording or Journalizing
- Classifying or Posting
- Summarizing or preparing financial reports
It can also be noted that accounting has been called an art as well as a science. It is considered an art because it involves the judgment of an accountant. It is also considered as a science because there are specific processes that must be followed.
The definition of AICPA specified that the transactions that are recorded and classified and summarized are those transactions that involve money. In other words, accounting considers transactions that could be measured in terms of money.
Accounting is normally used by economic entities. An economic entity is a unit that independently exists, such as a business, a hospital, or a government agency. These economic entities have different transactions that have to be measured in terms of money. These transactions are then processed using accounting and is then communicated to different users, either external or internal, via financial reports which are made by accountants.
- Accounting is used to measure business activities by recording data about them which could be used in the future.
- The financial data gathered using accounting are stored until needed and then processed to become useful information.
- The information is communicated through reports to decision makers.