Nature and purpose of accounting
Accounting is considered the language of business. It has evolved throughout the years as information needs changed and became more complex. The reader should be able to have a general understanding of accounting, be acquainted with the different definitions, know the different types of information found in accounting reports, and know the different uses of accounting information. Some say that accounting is a science because it is a body of knowledge that has been systematically gathered, classified, and organized. It could be influenced by a lot of factors, specifically by economic, social, and political events. Some say that accounting is an art because it requires creative skill and judgment. Furthermore, accounting is also considered as an information system because it is used to identify and measure economic activities, process the information into financial reports, and communicate these reports to the different users of accounting information.
Accounting as a Science-Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. Accounting as a science emphasises on:
1. Identifying - in accounting, this is the process of recognition or non-recognition of business activities as accountable events. Stated differently, this is the process that determines if an event has accounting relevance.
2. Measuring - in accounting, this is the process of assigning monetary amounts to the accountable events. Communicating - As we could notice with the above definitions, one main similarity between the three is the impact of communication. In order to be useful, accounting information should be communicated to the different decision makers.
3. Communicating-accounting information is achieved by the presentation of different financial statements.
Accounting as an Art-Accounting is the art of recording (journalizing), classifying (posting to the ledger), 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 to interested users. Accounting as an art emphasizes on the following:
1.Recording - The accounting term for recording is journalizing. All the accountable events are recorded in a journal.
2.Classifying - The accounting term for recording is posting. All accountable events that are recorded in the journal are then classified or posted to a ledger.
3.Summarizing - the items that are journalized and posted are summarized in the five basic financial statements
Accounting as an Information System-Accounting is a service activity, which functions to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. Accounting as an information system emphasizes on the following:
1.Quantitative information - this is information that is expressed in numbers, quantities or units
2. Qualitative information - this is information that is expressed in words
3.Financial information - this information is expressed in terms of money
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