According to American Institute of Certified Public Accountants (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.”
American Accounting Association (AAA) has defined accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.”
i. Accounting is the art of recording and classifying different business transactions.
ii. The business transactions may be completely or partially of financial nature.
iii. Generally the business transactions are described in monetary terms.
iv. In accounting process, the business transactions are summarized and analyzed so as to arrive at a meaningful interpretation.
v. The analysis and interpretations thus obtained are communicated to those who are responsible to take certain decisions to determine the future course of business.
a. To record the business transactions in a systematic manner.
b. To determine the gross profit and net profit earned by a firm during a specific period.
c. To know the financial position of a firm at the close of the financial year by way of preparing the balance sheet
d. To facilitate management control.
e. To assess the taxable income and the sales tax liability.
f. To provide requisite information to different parties, i.e., owners, creditors, employees, management, Government, investors, financial institutions, banks etc.