Page 7 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes If the volume of sales of the products is high and the numbers of transaction of the business are
very high, it is impossible for the businessman to keep all these transactions in his mind. Thus,
a need of recording of all these business transactions arise. The recording of the transactions and
eventually finding out whether the business has earned profits is the essence of accounting.

1.1 Meaning of Accounting

Accounting is defined as either recording or recounting the information of the business enterprise,
transpired during the specific period in the summarized form.
Accounting is broadly classified into three different functions, viz.

Recording
Classifying and Transactions of Financial Nature
Summarizing

!
Caution Accounting is not an equivalent function to book keeping. Accounting is broader
in scope than the book keeping, the earlier cannot be equated to the latter.
Accounting is a combination of various functions, viz.
Figure 1.1

Accounting

Recording of Transactions

Classification

Summarisation

Interpretaton

American Institute of Certified Public Accountants Association defines the term accounting as
follows “Accounting is the process of recording, classifying, summarizing in a significant manner
of transactions which are in financial character and finally results are interpreted.”

Qualities of Accounting

1. In accounting, transactions which are non-financial in character can not be recorded.
2. Transactions are recorded either individually or collectively according to their groups.
3. Users should be able to make use of information.

1.2 Process of Accounting

Accounting is described as origin for the creation of information and the continuous utility of
information. Now the question is how is this information created? For this, there is a step by
step process, as shown in Figure 1.2.

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