Livestock Economics, Marketing and Business Management

ACCOUNTING DEFINITION

• The American Accounting Association has defined accounting as the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.
• Accounting may be defined as the process of recording, classifying, summarizing, analyzing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information – Shukla et al(1993).
• An analysis of the definition brings out the following functions of accounting.

Recording

• This is the basic function of accounting. It is essentially concerned with ensuring that all business transactions of financial character are recorded in an orderly manner.
• Recording is done in the book- journal.

Classifying

• It is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place.
• The work of classification is done in the book termed as ledger.

Summarizing

• This involves presenting the classified data in a manner, which is understandable and useful to the internal as well as external end users of accounting statements.
• This process leads to the preparation of following statements:
  • Trial balance,
  • Income statement,
  • Balance sheet.

Deals with financial transactions

• Accounting records only those transactions and events in terms of money which are of financial character.
• Transactions which are not of a financial character are not recorded in the books of account.

Analysis and Interprets

• This is the final function of accounting.
• The recorded financial data are analyzed and interpreted in a manner that the end users can make a meaningful judgment about the financial condition and profitability of the business operations.

Communications

• The accounting information after being meaningfully analyzed and interpreted has to be communicated in a proper form and manner to the proper person.
• This is done through preparation and distribution of accounting reports.