8 November 2021


What is accounting? This basic question has never been answered precisely and many definitions of the term are available.

Picture : Stevepb

Back in 1941, the Committee on Terminology of the American Institute of Certified Public Accountants (AICPA) formulated the following definition, which was widely quoted for many years:

"Accounting is the art of recording, classifying and summarising in a significant manner, and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof. In 1966, The American Accounting Association (AAA), in order to emphasise the broader perspective of accounting, provided the following definition of accounting:

"Accounting is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information". In 1970, the AICPA of the US defined accounting with reference to the concept of information:

"Accounting is a service activity. Its function is to provide quantitative information, prima rily financial in nature, and about economic activities, that intended to be useful in making economic decisions".

The term, 'quantitative information used in the above definition is wider in scope than financial or economic information. Both the definitions, AAA (1966), and AICPA (1970) emphasise on using the information for the purposes of decision-making.

Modern accounting, therefore, is not merely concerned with record-keeping but also with a whole range of activities involving planning, control, decision making, problem solving, perfor mance measurement and evaluation, coordinating and directing, auditing, tax determination and planning, cost and management accounting.

The managers within an organisation and interested outside parties accounting infor mation in making decisions that effect the organisation. Today's accounting focusses on the ultimate needs of those, who use accounting information, whether these users are inside or outside the business itself.

Others have also given their definitions of accounting, but none has succeeded in clearly establishing the nature and scope of accounting. Each definition has merit that it describes essentially what accountants do, but the boundaries are fuzzy". Of the several available defini tions of accounting, the one developed by American Accouning Association is perhaps the best because of its focus on accounting as an aid to decision making".


Book-keeping should be distinguished from accounting which has been defined earlier. Book keeping is a processs of accounting concerned merely with recording transactions and keeping records. Book-keeping is a small and simple part of accounting. It is mechanical and repetitive while dealing with business transactions.

Accounting, on the other hand, aims at designing a satisfactroy information system which may fulfil informational needs of different users and decision makers. Accounting primarily focusses on measurement, analysis, interpretation and use of information. It highlights the relevance and relation ship of the information produced by the accounting process and effects of different accounting alternatives. Accounting includes budgeting, strategic planning, cost analysis, auditing, income-tax making, etc.
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