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Subtopic: Meaning of Accounting
Accounting is the systematic process of identifying, measuring, recording, and communicating financial information about economic events. It plays a vital role in business and finance by providing stakeholders—such as investors, management, creditors, and regulatory bodies—with reliable data to make informed decisions. In competitive exams like CUET, understanding the meaning and scope of accounting is essential because it forms the foundation for advanced topics in financial accounting, management accounting, and auditing. Moreover, accounting is widely used in real life for budgeting, taxation, financial planning, and evaluating business performance.
Definitions of Accounting
- Accounting (AICPA, 1941): "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."
- Accounting (American Accounting Association - AAA, 1966): "Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information."
Key Terms
- Economic Events: Events that have a financial impact on the business and can be measured in monetary terms. Examples include sales, purchases, receipt of cash, payment of expenses.
- Accounting Process: A sequence of steps involving identifying, measuring, recording, and communicating financial information.
- Accounting as an Information System: A system that collects, processes, and communicates financial data to users for decision-making.
Concepts of Accounting
- Accounting as an Art and Science:
- Art: It requires skill and knowledge to record and interpret financial data.
- Science: It follows systematic principles and procedures.
- Accounting as an Information System: Accounting collects data about economic events, processes it into meaningful reports, and communicates it to users for decision-making.
- Economic Events: These are transactions or occurrences that affect the financial position of a business and can be expressed in monetary terms. They are the raw data for accounting.
- Accounting Process Steps:
- Identifying: Recognizing economic events relevant to the business.
- Measuring: Quanti
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