BBA 1st year: Principles of Accounting 1st Chapter (Introduction to Accounting)
Definition of
Accounting
Accounting is an integral of two terms Account & science.
In it’s literal meaning Account means Counting. Accountancy is an applied
discipline. The system in which financial transactions of an organization for a
particular period are recorded to know the operating results and the financial position
of that concern to analyses and communicate the same to interested users is
called Accounting.
According to Weygant,
Kieso and Kimmel:- Accounting
is an information system that identifies records and communicates the economics
events of an organization to interested users.
According to Oxford
Dictionary of Accounting :- Accounting is the process of identifying,
measuring, Recording and communicating economic transactions.
Why "Accounting" is called "the Language of Business"
Why "Accounting" is called "the Language of Business"
Many famous writers of accounting of the world have regarded Accounting as the language of business.
Man expresses his feelings through language in written and verbal form, similarly, various information of the business organization are expressed and presented through accounting statements.
In language, efforts are made to express a particular feeling using words one after another.
Similarly in accounting, financial transactions are recorded in books of accounts and there from preparing financial statements various financial information are communicated to concerned persons.
Accounting furnishes all information about past events, current activities and future possibilities of a business. Recording and analyzing past and present financial events. Accounting presents and communicates various information in the form of statements and reports to the interested parties like owners, employees, management, investors, buyers, sellers etc.
From this accounts, statements, and reports, parties concerned can evaluate their success-failure, financial solvency/insolvency etc. Of course, having sound command over accounting language one can understand this information.
These financial statements are meaningless to those who do not have knowledge of accounting, in the same way as a newspaper is a bundle of papers to an illiterate person.
So, Accounting functions like a language. One may think it is not apt to compare Accounting with language but actually, it is not so.
With the change in society and human life language are changing. Similarly with the advancement and complexity of business accounting language is changing gradually.
Therefore, it is apt to say, "Accounting is the language of business."
What is GAAP?
Generally Accepted Accounting Principles (GAAP) refer to common set of accepted accounting principles, standards and procedures that companies and their accountants must followwhen they compile their financial statements.
GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information.
GAAP improves the clarity of the communication of financial information.
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