Accounting is the recording of day to day transactions of a business, occurs during business hours. It is known as the base of any business. Accounting is the mirror of any enterprise, business or firm which reflects its financial stability. In accounting several books of accounts are required to be maintained. By these books of accounts we came know about the financial stability of the business i.e. how much the business is earning profit or making loss during the financial year.
Different accounting bodies publishes different technical definition.The Institute of Chartered Accountants of India (ICAI)defines accounting as: “ the art of systematic recording, classifying, summarising 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.”
Lets understand the definition in the easier term:
1. Accounting as an art:
Accounting is considered as an art because, it requires special skills and creativity to keep the records of the transaction of the business. To perform the accounting function well, a training is required. It is also considered science as, it required a specialised body of knowledge to maintaining it. Whereas, accounting cannot be considered as an exact science because the rules and principles are not fixed like science, they changes with time.
2. Classifiying and summarising the transactions:
In accounting, the transactions which have been recorded are classified in a similar groups of items. After classifying, the information is summarised into reports which are called financial statement.
3. Events and transactions in terms of money:
In accounting events are not recorded, only transactions are recorded. For example, an appointment letter is sent to a person. Here, we are hiring an employee, it is an event, we will not record it. After hiring the employee, the salaries paid to the employee will be recorded, as it is a transaction. Accounting deals only with recording the monetary transactions.
4. Interpreting the results:
Interpreting results is one of the important phases of accounting. If the information cannot be interpreted and understood, they are useless. In the financial reports the meaningful and useful things to users are the amounts, figures and other data related to the business.