Accounting-Definition, Process, Objective, Origin, and Evolution [Notes with PDF]

In this article, we will learn in-depth about accounting, including its definition, steps in the accounting process, objectives, history, father of accounting, bookkeeping, types or branches, and much more.

What is Accounting? 

Simply we can state that Accounting is a systematic process of recording, classifying, and explaining all financial transactions. Accounting is also called an information system. 

Accounting provides the necessary information about the company’s profit and loss, the value, and the nature of a firm’s assets, liabilities, and owner’s equity for a particular time period.

Accounting is the process used to measures and report to various users relevant financial information regarding the economic activities of an organization or unit.

Financial Accounting Standard Board (FASB)

Accounting is the process of counting the number of transactions occurring in each business daily, and identifying these transactions as soon as they occur, then writing to the accounting book, processing it, and providing this information to the interested users.


What are the 3 Steps in Accounting Process?

The 3 Steps in the accounting process are as follows:

  1. Identification
  2. Recording
  3. Communication
Accounting-Definition, Process, Objective, Origin, and Evolution
Accounting Process

1.Identification:

  • The first work of accounting
  • The primary purpose of accounting
  • The main component or input of accounting is the transaction.
  • The authentic documents of the transaction are invoices, vouchers, cash memos, and so on.

2. Recording:

There are three components to the recording process:

  • Transaction analysis i.e. debit and credit determination.
  • Transaction journaling.
  • Transfer transactions to the ledger.

This step is called bookkeeping

3. Communication

  • The main purpose of accounting.
  • Accounting produces a variety of financial reports that offer the necessary information to the concerned parties.

What are the 10 Important Objectives and Necessity of Accounting?

The objectives and necessity of accounting are infinite. The 10 important objectives and necessity of accounting are as follows:

1. It is impossible to know a company’s financial status without proper transaction recording. As a result, the primary goal of accounting is to properly record transactions in the books of accounts.

2. Accounting’s primary goal is to determine a company’s financial situation and performance. Identifying the profit and loss will help you figure out how a company is doing. A company’s profit and loss can be calculated by accurately recording all of its incomes and expenditures.

3. Determining a company’s assets, liabilities, and equity will provide a pen picture of its financial situation.

4. Cost-cutting will help a company achieve its goals. Accounting aids in the accurate recording of costs and therefore aids in cost reduction.

5. Accounting has no other options for preventing company fraud and forgery. We can avoid and monitor fraud and forgery by properly recording accounts.

6. Assists in informing interested parties about financial conditions and making sound decisions.

7. Financial data from the previous year aids in taking the appropriate steps by allowing for comparative analysis.

8. Determines the source of money flow inside and outside of various service-oriented nonprofit organizations such as schools, universities, hospitals, clubs, and societies, as well as the balance of their accounts.

9. The government accumulates funds by collecting VAT, duties, and taxes, and then contributes to various routine and growth activities. Accounting plays a crucial role in ensuring that government operations run smoothly.

10. the books of accounts and related records are beneficial to a company in a variety of ways, including obtaining a bank loan or obtaining a loan from a money lending agency, determining the selling price of a commodity, identifying potential operations, and so on.

Accounting is a must if you want to live a fine, disciplined, and frugal life. The company can never determine the benefits and drawbacks without proper accounting.

Keeping accurate records ensures that a company’s costs and waste are under control, allowing it to achieve financial solvency.

You can also read Why accounting is called the language of Business?

What is the Berief History of Accounting?

The history of accounting is like the history of human civilization. so, we can say that accounting has been originated from the beginning of human civilization.

The origin and evolution of accounting can be divided into the following four stages.

1. Development Period (Pre-1494): 

The period from the beginning of civilization up to 1494 has been included in the primitive age. Primitive age can be divided into the following four ages:

I. Stone Age:  In this age, people used different types of images, symbols, cave engraving for bookkeeping.

ii. Ancient Age: In this age, People used to tie ropes, cut stains on walls, cut marks on bamboo for keeping accounts.

iii. Exchange Age: In this era, People used to calculate the exchange of goods by painting the walls of the ground or carving wooden doors. In this age, an instrument called “Abacus” was used in China for accounting.

iv. Money Age: In this age, currency was used as a medium of transaction. Kori, Leather was used as a medium of transaction.

 2. Pre-analytical periods (1994-1800): 

During this period trade and commerce expanded rapidly. In this age, The Italian mathematician Luca Pacioli is known as the father of accounting and bookkeeping discovered the basis of accounting Debit and Credit of accounts.

3. Analytical Period (1800-1950): 

Basically, the propagation of modern accounting began in this era. In this age accounting research started and new theories were invented.

4. Current or modern Period (post-1950):    

During this time, there was a great change in the science of accounting. Accounting standards have been issued and various branches of accounting have emerged.

You can also read:

Who is called the father of Accounting ?

The history of accounting is thousands of years old. The Italian mathematician Luca Pacioli is known as the father of accounting and bookkeeping. 

He wrote Summa de Arithmetica, Geometria, Proportioniet Proportionlita (“The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality’) back in 1494, which included a 27-page essay on Bookkeeping. 

He explained the basic principles of Bookkeeping through the double-entry system in it.

You can also read: Short Questions and Answers-Basic Accounting

What is book-keeping?

Book-keeping usually involves only the recording of the economic events of a business. The task of book-keeping is to record the transactions primarily in the book of accounts and to classify the transactions recorded.

What is the Difference between Book-keeping and Accounting?

It is assumed that bookkeeping and accounting are the same and that there is no difference between them.

Truly! But there is a huge difference between them because the accounting work starts where the bookkeeping work ends.

The difference between bookkeeping and accounting is as follows:

Sl No.Book-keepingAccounting
1.Bookkeeping is the recording step of accounting.Accounting is a practical system.
2.The task of bookkeeping is to record the transactions primarily in the book of accounts and to classify the transactions recorded.Its main task is to prepare an accounting statement from the transactions recorded in the book of accounts and to analyze and interpret the recorded accounts and provide the information obtained from it to the concerned user or party.
3.The bookkeeping process involves the application of two steps of the accounting cycle – Journalizing and Ledger Posting.The accounting process involves the application of all steps of the accounting cycle.
4.Bookkeeping basically performs three functions – collecting and analyzing transactions, journalizing transactions, and classifying transactions.The work of accounting begins where the bookkeeping work ends.
5.Bookkeeping is the basic level of Accounting.Accounting is the final stage of an accounting system.
6.The scope of bookkeeping is very narrow. It is just a part of accounting.The scope of accounting is very large.

What are the 6 Important Branches or Types of Accounting?

The 6 important branches or types of accounting are as follows:

Financial Accounting:

The main function of financial accounting is to record the financial transactions of an organization and to determine the results and financial condition at regular intervals.

Financial accounting prepares various financial statements, reports, and statements and provides the necessary information to the stakeholders.

Management Accounting:

It is the job of this branch of accounting to provide day-to-day decision-making, future planning, and other necessary information to the management of the organization.

Auditing:

It is the job of this branch of accounting to detect and prevent errors and fraud by checking whether financial transactions have been recorded, financial reports and statements prepared properly.

Certified professional accountants in almost all countries of the world perform independent audits.

Cost Accounting:

Determining, analyzing, and controlling the production cost of the product or service produced by the manufacturing organization is the main function of production cost accounting.

Tax Accounting:

The main function of tax accounting is to inform the management about the assessment of income tax and other taxes and the effect of the tax on various transactions after a certain period of time.

Social Accounting:

Social accounting is the name of a new way of thinking in accounting. Determining the income and expenditure of social activities is the work of this accounting.

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