Accounting-Definition, Process, Objective, Origin, and

Evolution [Notes with PDF]

everythingaboutaccounting.info/2019/09/accounting-definition-process-objective-origin.html

September 12, 2019

In this article, we will learn in-depth about accounting, including its definition, steps in the
accounting process, objectives, history, the father of accounting, bookkeeping, types or
branches, and much more.

Table of Contents
1. What is Accounting? 
2. What are The Three Steps in The Accounting Process?
3. What are The 10 Important Objectives and Necessity of Accounting?
4. What is The Brief History of Accounting?
5. Who is Called The Father of Accounting?
6. What is Bookkeeping?
7. What Is The Difference Between Accounting and Bookkeeping?
8. What are the Six Important Branches or Types of Accounting?

What is Accounting? 
Simply, we can state that accounting is a systematic process of recording, classifying, and
explaining all financial transactions. Accounting is also called an information system. 

Accounting provides the necessary information about the company’s profit and loss, the
value, and the nature of a firm’s assets, liabilities, and owner’s equity for a particular time
period.

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 Accounting is the process used to measures and report to various users relevant
financial information regarding the economic activities of an organization or unit.

Financial Accounting Standard Board (FASB)

Accounting is the process of counting the number of transactions occurring in each

business daily and identifying these transactions as soon as they occur, then recording
them in the accounting book, processing them, and providing this information to
interested users.

What are The Three Steps in The Accounting Process?

The three steps in the accounting process are as follows:

1. Identification
2. Recording
3. Communication

Accounting Process

1.Identification:

The first work of accounting

The primary purpose of accounting
The main component or input in accounting is the transaction.
The authentic documents for the transaction are invoices, vouchers, cash memos,
and so on.

2. Recording:

There are three components to the recording process:

Transaction analysis, i.e. debit and credit determination.

Transaction journaling.
Transfer transactions to the ledger.

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This step is called bookkeeping

3. Communication

The main purpose of accounting.

Accounting creates a variety of financial reports that give the people who need them
the information they need.

What are The 10 Important Objectives and Necessity of

Accounting?
The objectives and necessities of accounting are infinite. The 10 important objectives and
necessities of accounting are as follows:

1. It is impossible to know a company’s financial status without proper transaction

recording. So, the main goal of accounting is to put transactions in the books of accounts
in the right way.

What is Accounting? - Financial Acc...

What is Accounting? - Financial Accounting
2. Accounting’s primary goal is to determine a company’s financial situation and
performance. Identifying the profit and loss will help you figure out how a company is
doing. You can figure out a company’s profit and loss by keeping track of all of its income
and expenses.

3. Figuring out a company’s assets, debts, and equity will give you a good idea of its
financial situation.

4. Cost-cutting will help a company achieve its goals. Accounting aids in the accurate
recording of costs and therefore aids in cost reduction.

5. Accounting has no other options for preventing company fraud and forgery. We can
avoid and monitor fraud and forgery by properly recording accounts.

6. Assists in informing interested parties about financial conditions and making sound
decisions.

7. Financial information from the previous year helps people take the right steps by letting
them compare and contrast.

8. Determines the source of money flow inside and outside of various service-oriented
nonprofit organizations, such as schools, universities, hospitals, clubs, and societies, as
well as their account balance.

9. The government accumulates funds by collecting VAT, duties, and taxes, and then
contributes to various routine and growth activities. Accounting plays a crucial role in
ensuring that government operations run smoothly.

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10. The books of accounts and related records are beneficial to a company in a variety of
ways, including obtaining a bank loan or a loan from a money lending agency,
determining the selling price of a commodity, identifying potential operations, and so on.

Accounting is a must if you want to live a fine, disciplined, and frugal life. The company
can never determine the benefits and drawbacks without proper accounting.

By keeping accurate records, a company can keep its costs and waste under control and
become financially stable.

You can also read: Why accounting is called the language of business?

What is The Brief History of Accounting?

The history of accounting is like the history of human civilization. So, we can say
that accounting has been around since the beginning of human civilization.

The origin and evolution of accounting can be divided into the following four stages.

1. Development Period (Pre-1494): 

The period from the beginning of civilization up to 1494 has been included in the primitive
age. Primitive ages can be divided into the following four groups:

I. Stone Age:  In this age, people used different types of images, symbols, and cave
engraving for bookkeeping.

ii. Ancient Age: In this age, people used to tie ropes, cut stains on walls, and cut marks
on bamboo for keeping accounts.

iii. Exchange Age: In this era, people used to calculate the exchange of goods by
painting the ground or carving wooden doors. In this age, an instrument called an
“Abacus” was used in China for accounting.

iv. Money Age: In this age, currency was used as a medium of transaction. Kori, Leather
was used as a medium of transaction.

 2. Pre-analytical periods (1994-1800): 

During this period, trade and commerce expanded rapidly. In this age, the Italian
mathematician Luca Pacioli, known as the father of accounting and bookkeeping,
discovered the basis of accounting: debit and credit accounts.

3. Analytical Period (1800-1950): 

Basically, the propagation of modern accounting began during this era. In this age,
accounting research started and new theories were invented.

4. Current or modern Period (post-1950):    

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During this time, there was a great change in the science of accounting. Accounting
standards have been issued, and various branches of accounting have emerged.

You can also read:

Role of accounting in developing accountability and values.

Relationship of accounting with other subjects.

Who is Called The Father of Accounting?

The history of accounting is thousands of years old. The Italian mathematician Luca
Pacioli is known as the father of accounting and bookkeeping. 

He wrote Summa de Arithmetica, Geometria, Proportioniet Proportionlita (“The

Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality”) back in
1494, which included a 27-page essay on bookkeeping. 

He explained the basic principles of bookkeeping through the double-entry system there.

You can also read: Short Questions and Answers-Basic Accounting

What is Bookkeeping?
Bookkeeping usually involves only the recording of economic events in a business. The
task of bookkeeping is to record transactions primarily in the book of accounts and
classify the transactions recorded.

What Is The Difference Between Accounting and Bookkeeping?

It is assumed that bookkeeping and accounting are the same and that there is no
difference between them.

Truly! But there is a huge difference between them because the accounting work starts
where the bookkeeping work ends.

The differences between bookkeeping and accounting are as follows:

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 Sl Bookkeeping Accounting
No.

1. Bookkeeping is the recording Accounting is a practical system.

step of accounting.

2. The task of bookkeeping is to Its main task is to prepare an accounting

record transactions primarily statement from the transactions recorded in the
in the book of accounts and book of accounts and analyze and interpret the
classify the transactions recorded accounts and provide the information
recorded. obtained from it to the concerned user or party.

3. The bookkeeping process The accounting process involves the application

involves the application of of all steps of the accounting cycle.
two steps of the accounting
cycle, journalizing and ledger
posting.

4. Bookkeeping basically The work of accounting begins where the

performs three functions: bookkeeping work ends.
collecting and analyzing
transactions, journalizing
transactions, and classifying
transactions.

5. Bookkeeping is the basic Accounting is the final stage of an accounting

level of Accounting. system.

6. The scope of bookkeeping is The scope of accounting is very large.

very narrow. It is just a part of
accounting.

What are the Six Important Branches or Types of Accounting?

The six important branches or types of accounting are as follows:

#1. Financial Accounting:

The main goal of financial accounting is to keep track of a business’s financial

transactions and check on the business’s results and financial health on a regular basis.

Financial accounting is the preparation of various financial statements, reports, and

statements, as well as the provision of the necessary information to stakeholders.

#2. Management Accounting:

This part of accounting is in charge of giving the organization’s management the

information they need to make day-to-day decisions, plan for the future, and do other
important things.

#3. Auditing:

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It is the job of this branch of accounting to detect and prevent errors and fraud by
checking whether financial transactions have been recorded, and financial reports &
statements prepared properly.

Independent audits are performed by certified professional accountants in almost every

country around the world.

#4. Cost Accounting:

Determining, analyzing, and controlling the production cost of the product or service
produced by the manufacturing organization is the main function of cost accounting.

#5. Tax Accounting:

The main purpose of tax accounting is to tell management how much income tax and
other taxes cost and how those taxes affect different transactions after a certain amount
of time has passed.

#6. Social Accounting:

Social accounting is the name of a new way of thinking in accounting. The job of this
accounting is to determine the income and expenditures of social activities. 

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