Accounting
is the analysis and interpretation of book-keeping records. It includes not
only the maintenance of accounting records but also the preparation of
financial and economic information which involves the measurement of
transactions and other events relating to the entity.
Accounting
is defined as "the art of recording, classifying and summarizing in terms
of money transactions and events of financial character and interpreting the
results thereof."
In
simple words we can say that-
·
accounting is an art.......
·
of recording, classifying and summarizing.........
·
in terms of money......
·
transactions and events of financial nature and
·
interpreting the results thereof.
Accounting
is an art of correctly the day to day business transactions. It is a science of
keeping the business records in a regular and most systematic manner so as to
know the business results with minimum trouble. Therefore, it is said to be
statistical procedure for the collection, classification and summarization of
financial information.
"Accounting
is a means of collecting, summarizing, analyzing and reporting in monetary
terms, information about the business."
Now a
days accounting is regarded as a "service activity". In 1970 the
Accounting Principles Board of the American Institute of Certified Public
Accountants enumerated that, "The function of accounting is to provide
quantitative information, primarily of financial nature, about economic
entities that is needed to be useful in making economic decisions."
Basic of Accounting Systems
Cash or
receipt basis
Is the method of
recording transactions under which revenues and costs and assets and
liabilities are reflected in accounts in the period in which actual receipt or
actual payments are made. "Receipt and payments account" in case of
clubs, societies, hospitals etc., is the example of cash basis of accounting.
Accrual or mercantile basis
Is the method of recording transaction by which revenues, costs, assets and liabilities are reflected in accounts in the period in which they accrue. This basis includes considerations relating to outstanding; prepaid, accrued due and received in advance.
Hybrid or mixed basis
Is the combination of both the basis i.e. cash as well as mercantile basis. Incomes are recorded on cash basis but expenses are recorded on mercantile basis. The following illustration will make the distinction clear between cash and mercantile basis of accounting.
Accrual or mercantile basis
Is the method of recording transaction by which revenues, costs, assets and liabilities are reflected in accounts in the period in which they accrue. This basis includes considerations relating to outstanding; prepaid, accrued due and received in advance.
Hybrid or mixed basis
Is the combination of both the basis i.e. cash as well as mercantile basis. Incomes are recorded on cash basis but expenses are recorded on mercantile basis. The following illustration will make the distinction clear between cash and mercantile basis of accounting.
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