Nature and Scope of Accounting

Objectives of Accounting
• To keep systematic records
• To protect business properties
• To ascertain the net effect of the business
operations, i.e., profit or loss of business
• To ascertain the financial position of the business
• To provide accounting information to interested
parties
• Information system
 Definition of Accounting
• The American Accounting Association defines
accounting as the process of identifying,
measuring and communicating economic
information to permit informed judgments and
decisions by users of information
 Definition of Accounting
• The Committee on Terminology: 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
 Definition of Accounting
• Accounting is the process of identifying,
measuring, recording, classifying,
summarizing, analyzing, interpreting and
communicating the financial transactions and
events in monetary terms.
 Scope of Accounting
• Accounting is concerned with financial transactions
and events which bring about a change in the
resources (or wealth) position of the business firm.
Such transactions have to be identified first, as and
when they occur
• These transactions are to be measured or expressed
in terms of money.
• The transaction which are identified and measured
are to be recorded in a book called journal or in one
of its sub-divisions.
 Scope of Accounting
• The recorded transactions are to be classified with a
view to group transactions of similar nature in one
place.
• The recording and classification of many transactions
will result in a mass of financial data. It is, therefore,
necessary to summarize such data periodically (at least
once a year), in a significant and meaningful form.
• The summary results will have to be analyzed,
interpreted (critically explained) and communicated to
interested parties.
Book-Keeping, Accounting and Accountancy

• Accounting involves a series of activities: (1)

identifying, (2) measuring), (3) recording, (4)
classifying, (5) summarizing, (6) analyzing, (7)
interpreting, and (8) communicating, the
financial transactions and events
Book-Keeping, Accounting and Accountancy

• Book-keeping is a narrow term, which means

record keeping or maintaining books of
account. It only covers the first 4 activities of
accounting.
• The term “accountancy” refers to a
systematized knowledge of accounting and is
regarded as an academic subject
 Nature of Accounting
• Accounting as a service activity
• Accounting as a profession
• Accounting as a social force
• Accounting as a language
• Accounting as science or art
• Accounting as an information system