Accounting Basics: Definitions and Objectives

Meaning and Definitions of Accounting

• Accounting is the process of identifying, measuring, and communicating economic information to users to help them make informed decisions.
• It involves recording, classifying, summarizing, and analyzing financial transactions.

Attributes (Characteristics) of Accounting

• Objectivity: Accounting information should be based on verifiable evidence and free from bias.
• Reliability: Accounting information should be accurate and dependable.
• Comparability: Accounting information should be comparable across different periods and entities.
• Consistency: Accounting information should be prepared using the same methods and principles over time.
• Relevance: Accounting information should be useful for decision-making.
• Understandability: Accounting information should be presented in a clear and concise manner.

Objectives of Accounting

• To provide information about the financial position, performance, and cash flows of an entity.
• To help users make informed decisions about the entity, such as investing, lending, or managing.
• To ensure accountability and transparency in the use of resources.

Accounting Process

• The accounting process involves a series of steps, including:
  • Identifying: identifying economic transactions and events relevant to the entity.
  • Measuring: assigning monetary values to the transactions and events.
  • Recording: recording the transactions and events in chronological order.
  • Classifying: grouping similar transactions and events together.
  • Summarizing: preparing financial statements that provide a summary of the entity's financial position, performance, and cash flows.
  • Analyzing and Interpreting: analyzing and interpreting the financial statements to provide insights and recommendations.
  • Communicating: communicating the financial information to users, such as investors, creditors, and management.

Branches of Accounting

• Financial accounting: provides information about the entity's financial position, performance, and cash flows to external users, such as investors, creditors, and regulators.
• Management accounting: provides information to internal users of the entity, such as management, to help make decisions about operations and planning.
• Cost accounting: focuses on the cost of producing goods and services.
• Tax accounting: deals with the tax implications of business transactions.
• Auditing: involves the independent verification of financial statements to provide assurance to users about their reliability.

Book Keeping, Accounting and Accountancy

• Bookkeeping is the process of recording financial transactions in chronological order, while accounting is a broader concept that involves the analysis, interpretation, and communication of financial information.
• Accountancy is a profession that involves the application of accounting principles and practices to various fields.

This quiz covers the fundamental meanings and definitions of accounting, exploring its key attributes such as objectivity, reliability, and comparability. Additionally, it delves into the objectives of accounting and its importance in financial decision-making. Test your understanding of these essential concepts in accounting.