Accounting is a method for recording transactions and keeping financial records. It is a procedure of identifying the events of financial environment, recording them in Journal, classifying in their relevant ledgers, summarizing them in Profit and Loss Account and Balance Sheet and communicating the results to the users of such information, viz. owner/s, government, creditors, investors etc.
According to the American Institute of Certified Accountants, 1941, “Accounting is an art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events that are, in part at least, of a financial character and interpreting the results thereof.”
Main objectives of accounting are given below:
- To keep a systematic record of all business transactions
- To find out the revenue earned or loss incurred during an accounting time
- To determine the financial position of the business at the end of accounting period by preparing balance sheet
- To support management for decision making, effective manage, forecasting, etc.
- To evaluate the progress and growth of business from year to year
- To detect and prevent frauds and errors
The role of accounting is ever changing. While in previous times, accounting was simply apprehensive with recording the financial events, i.e. record-keeping movement; however, now-a-days, accounting is done with the rationale of not only maintaining records, but also providing an information system that provides significant and related information to diverse accounting users. The need of this transform is brought over due to the ever-changing and energetic business environment, which is more competitive in nature now than it was in earlier times. Further, there are various relevant activities like decision making, forecasting, judgment, and assessment that make these changes in the role of accounting, predictable.