Accounting | Definition of Accounting

Accounting | Definition of Accounting

Before attempting to define accounting, it may be added that there is no unanimity among accountants as to its precise definition. However, some of the definitions are as given below.
According to L.C.Copper, “Book-keeping may be described as the science of recording transactions in money or money’s worth in such a manner that, at any subsequent date, their nature and effect may be clearly understood, and that, when required, a combined statement of their result may be prepared”.

R.N. Carter defines Book-keeping as “Book-keeping is the science and art of correctly recording in books of account all those business transactions that result in the transfer of money or money’s worth”.
Yet another definition is given by A.H. Rosenkampff. According to him, “Book-keeping is
the art of recording business transactions in a systematic manner”.
Out of the above and many more others, the most acceptable one is that given by American
Institute of Certified Public Accountants (AICPA) Committee on Terminology. According to
AICPA “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 a financial character
and interpreting the results thereof ”.
Book-keeping is a subject of profound-importance to all kinds of business enterprises.
It is of great importance, for example, to manufacturing concerns, trading concerns, banks,
transport companies and insurance companies. They have to follow a proper accounting system
if they want to know as to whether they are earning, profits or incurring losses and how much;
whether or not all the transactions have been recorded fully and accurately; the amount they owe
to their creditors as well as the amount owed to them by their debtors.

Accounting | Definition of Accounting

Thus the objects of accounting are to enable the businessman to ascertain accurately and

  1. The amount of gain or loss during a particular period, and
  2. The amount of his assets and liabilities and capital in the firm at a particular point of time.

Double Entry Principle: In the present era double entry system of book-keeping is
considered to be the best, common and universal system, because it is modem, scientific, and
complete. It fulfils all the objects of a businessman. It originated in western countries and so it is
also called western system of accounting. It is also called mercantile system of accounting because according to this system cash and credit transactions can be recorded.
Double entry system has been defined differently by different authorities. Some of which are
as follow:
According to Carter, “The modem system of Accounting in use is known as Double Entry”.
Double Entry is a system of Book-keeping by means of both personal and impersonal accounts.”
M.J. Keller defines Double Entry System as follows: “The most common system of
accounting data for an enterprise is the Double Entry System. As the name implies, the entry
made for each transaction is composed of two parts, a ‘Debit’ and a ‘Credit’.

Accounting | Definition of Accounting

Each business transaction that result in transfer of money or money’s worth involves a two-
fold aspect, (a) the yielding or giving of a benefit, and (b) the receiving of that benefit. In other

words every business transaction involves exchange of value for value, or inter-change of money
or money’s worth or every business transaction involves receiving something having value and
giving something which has value. According to Double Entry System, both these aspects of the
transaction, the receiving aspect and the giving aspect, are recorded. Thus, if Building is bought
from Mukesh, Building Account receives and Mukesh’s Account gives. There must, therefore,
be double entry to have a complete record of each transaction.

For a clear understanding of the principles of double entry system, it is necessary to first
carefully bear in mind that certain transactions are common to almost every business. These
common transactions are as follows:

  1. The businessman enters into business dealings with a number of persons or firms;
  2. He must have some assets or properties in which or with the help of which he carries on
    the business; and
  3. He must incur certain expenses such as office rent, salaries, advertising, etc. for carrying
    on the business, and that he must have some sources form which the income of the business is
    It follows, therefore, that in order to keep a complete record of all the business transactions, it
    will be necessary to keep the following accounts
    (i) The account of each person or firm with whom the firm has to deal;
    (ii) The account of each asset or property in the business; and
    (iii) The account of each head of expense or source of income.
    The accounts which come under first group are called Personal Accounts, those which come
    under second group are called Real Accounts, and those coming under the third group are called
    Nominal accounts.
    Since words ‘debit and credit’, and ‘Account’ have been used in the above definitions and
    discussion, it will be better if we first understand the meaning of these words and then proceed to
    discuss the rules of double entry system.
    The double entry system divides the page into two equal halves. The left hand side of each
    page is called the debit side, while the right hand side is called the credit side. There was no rational reason in the way in which the sides were chosen to represent different items, and the credit side could have easily been the left-hand side and the debit the right hand side. The Venation merchants who were the ‘first known businessmen to use double entry just happened to select the left hand or debit side for the assets and opposite side to represent capital and liabilities, and so it has remained ever since.


Accounting | Definition of Accounting

An Account is an arranged and ordered record in which the cash esteems (in some cases

additionally the amounts or the cash esteems and amounts together) of the considerable number of advantages given or gotten by a specific gathering (which might be an individual or a represented article) are masterminded in two separate sections on the privilege and left sides individually of each sheet of paper or each page or folio of the book in which it is composed. There will be a charge side just as credit side to each record. This is demonstrated by expressing “Dr” and “Cr” on the left-hand side and right-hand side edge separately of the record. All sections in the Dr. side are gone before by the word ‘To’, implying that the record of which the record is being readied is an indebted person to the record the name of which shows up in the passage. Then again, all sections in the credit side are gone before by the word ‘By’, with the goal that every section may imply that the record of which the record is being arranged is credited by the record the name of which shows up in the passage. The title of the

account is composed over the highest point of the record at the inside.

The record of the gathering that gives an advantage is known as a “Leaser” and that of the gathering that

gets it is known as an “Indebted person”. When in doubt the estimation of each advantage gotten by an

account is entered on the left-hand segment of the record and the record is said to have been

‘charged’ with such esteem; then again, the estimation of each advantage given by a record is

entered on the right-hand section of the record and the record is said to have been ‘credited’

with such esteem. These are called charge and credit passages separately.

Having comprehended the importance of the words “Charge and Credit”, and “Record”, let us now continue with the clarification of tenets of twofold section framework.

Bookkeeping as an Information System

Bookkeeping is frequently alluded to as the dialect of business. The essential point of a dialect is to fill in as a methods for correspondence. Bookkeeping is utilized to impart money related and other data to individuals, associations, Governments and so forth., about different parts of business and non-business substances. Bookkeeping data is utilized when Mr. An applies for a credit at a bank or at the point when A presents his .pay assessment forms. Business endeavors use representing their everyday exercises and to report the consequence of these exercises to their proprietors, loan bosses, representatives and Administrative organizations. The bookkeeping is, subsequently, likewise a data framework. In the present

society, a large number of people and organizations outside the bookkeeping data; (I) Accountant may

manage crafted by accountant’s chronicle work however the clerks have no job in

bookkeeper’s work of elucidation; (ii) crafted by accountant is normal and administrative in nature

what’s more, is progressively being finished by PCs. Be that as it may, crafted by bookkeeper is specialized in nature

what’s more, requires larger amount of learning, reasonable understanding and diagnostic expertise; (iii)

Accounting is done as per essential ideas and traditions for a wide range of associations. Be that as it may, the strategies and methodology embraced by bookkeepers in the examination and translation of monetary reports may not be same for all the firms.Accounting data is communicated regarding cash. Non-fiscal occasions or exchanges, anyway essential they might be, are totally overlooked.

(ii) Fixed resources are recorded in the bookkeeping records at the first cost, that is, the

genuine sum spent on them besides, obviously, an accidental charges. Along these lines the impact

of swelling (or emptying) isn’t thought about. The immediate consequence of this

practice is that monetary record does not speak to the genuine money related position of the business.

(iii) Accounting data is at some point dependent on assessments; gauges are frequently incorrect.

For instance, it is preposterous to expect to anticipate with any level of precision the genuine valuable life of a benefit with the end goal of deterioration cost.

(iv) Accounting data can’t be utilized as just trial of administrative execution on the premise of more benefits. Benefits of a time of one year can promptly be controlled by precluding such expense of commercial, innovative work, devaluation and soon.

(v) Accounting data isn’t impartial or fair-minded. Bookkeepers compute salary as abundance of income over costs. In any case, they think about just chosen incomes and costs. They don’t, for instance, incorporate expense of such things as water or air contamination, representative’s wounds and so forth.

(vi) Accounting like some other order needs to pursue certain standards which in certain cases are opposing. For instance current resources (e.g., supply of merchandise) are esteemed on the premise of expense or market value whichever is less after the guideline of conservatism. Likewise the present resources might be esteemed on cost premise in some year

what’s more, at market cost in other year. As such, the standard of consistency isn’t pursued normally.

Accounting | Definition of Accounting

Accounting | Definition of Accounting
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