Introduction to Accounting — Class 11 Accountancy

Accounting is the process of identifying, measuring, recording and communicating the economic events of an organisation to the interested users of such information. The AICPA in 1941 described it as the art of recording, classifying and summarising transactions of a financial character, while the American Accounting Association in 1966 stressed identifying, measuring and communicating economic information for informed decisions. The accounting process begins with the identification of business transactions, then measures them in monetary terms, records them in a chronological manner, and finally communicates the summarised information through reports. Because it conveys financial information, accounting is called the language of business. Its users are grouped into internal users (chief executive, managers, supervisors) and external users (investors, creditors, banks, tax authorities, regulators, customers). The discipline has branched into financial accounting, cost accounting and management accounting. Useful accounting information should possess the qualitative characteristics of reliability, relevance, understandability and comparability. The main objectives of accounting are to maintain systematic records of transactions, calculate profit or loss, depict the financial position through a balance sheet, and provide information to its users. The chapter also introduces basic terms such as entity, transaction, assets, liabilities, capital, drawings, sales, revenue, expenses, profit, gain, loss, debtors, creditors, stock, voucher and goods.