What is Accounting? Definition and Meaning

What is Accounting?

Accounting is famously known as the "language of business". Through the financial statements, the end-product reports in accounting, it delivers information to different users.

Accounting is a means through which information about a business entity is communicated.

Accounting Definition

Technical definitions of accounting have been published by different accounting bodies. The American Institute of Certified Public Accountants (AICPA) defines accounting as:

“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 financial character, and interpreting the results thereof.”

Studying the statement above will give us a better understanding of accounting.

1. Accounting is considered an art

Accounting is considered an art because it requires the use of skills and creative judgment. One has to be trained in this discipline to be able to perform accounting functions well.

Accounting is also considered a science because it is a body of knowledge. However, accounting is not an exact science since the rules and principles are constantly changing (improved).

2. Accounting involves interconnected "phases"

Recording pertains to writing down or keeping records of business transactions. Classifying involves grouping similar items that have been recorded. Once they are classified, information is summarized into reports which we call financial statements.

3. Concerned with transactions and events having financial character

For example, hiring an additional employee is qualitative information with no financial character. Hence, it is not recorded. However, the payment of salaries, acquisition of an office building, sale of goods, etc. are recorded because they involve financial value.

4. Business transactions are expressed in terms of money

They are assigned amounts when processed in an accounting system. Using one of the examples above, it is not enough to record that the company paid salaries for April. It must include monetary figures – say for example, $20,000 salaries expense.

5. Interpreting the results

Interpreting results is part of the phases of accounting. Information is useless if they cannot be interpreted and understood. The amounts, figures, and other data in the financial reports have meanings that are useful to the users.

By studying the definition alone, we learned some important concepts in accounting. It also gave us an idea of what accountants do.

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