Practice and body of knowledge concerned of recording, classifying, summarizing and primarily with finalizing the financial data. The word art refers to the way of performing something. methods for recording transactions, It is a behavioral knowledge involving keeping financial records, certain creativity and skill that may help us performing internal audits, to attain some specific objectives. reporting and analyzing financial Accounting is a systematic method information to the management, and consisting of definite techniques and its advising on taxation matters. proper application requires applied skill and expertise. So, by nature accounting is an art. It is a systematic process of identifying, recording, measuring, classifying, verifying, 3. Accounting is means and not an end: summarizing, interpreting and Accounting finds out the financial results communicating financial information. It and position of an entity and the same time, reveals profit or loss for a given period, and it communicates this information to its users. the value and nature of a firm's assets, The users then take their own decisions on liabilities and owners' equity. the basis of such information. So, it can be said that mere keeping of accounts can be Accounting provides information on the the primary objective of any person or 1.) resources available to a firm, entity. On the other hand, the main objective 2.) the means employed to finance may be identified as taking decisions on the those resources, basis of financial information supplied by 3.) the results achieved through their accounting. Thus, accounting itself is not an use. objective, it helps attaining a specific objective. So it is said the accounting is a Nature of Accounting means to an end and it is not an end in itself. We know Accounting is the systematic recording of financial transactions and 4. Accounting deals with financial presentation of the related information of the information and transactions; Accounting appropriate persons. The basic features of records the financial transactions and date accounting are as follows: after classifying the same and finalizes their result for a definite period for conveying 1. Accounting is a process: A process refers them to their users. So, from starting to the to the method of performing any specific job end, at every stage, accounting deals with step by step according to the objectives, or financial information. Only financial target. Accounting is identified as a process information is its subject matter. It does not as it performs the specific task of collecting, deal with non-monetary information of non- processing and communicating financial financial aspect. information. In doing so, it follows some definite steps like collection of data 5. Accounting is an information system: recording, classification summarization, Accounting is recognized and characterized finalization and reporting. as a storehouse of information. As a service function, it collects processes and communicates financial information of any Certified Public Accountants (AICPA) and entity. This discipline of knowledge has its predecessors had responsibility for setting been evolved out to meet the need of accounting standards until 1973, when financial information required by different the Financial Accounting Standards interested groups. Board (FASB) was established. The industry thrived in the late 20th century, as the large accounting firms expanded their services History of Origin of Accounting beyond the traditional auditing function to The name that looms largest in early many forms of consulting. accounting history is Luca Pacioli, who in 1494 first described the system of double- The Enron scandals in 2001, however, had entry bookkeeping used by Venetian broad repercussions for the accounting merchants in his Summa de Arithmetica, industry. One of the top firms, Arthur Geometria, Proportioni et Proportionalita. Andersen, went out of business and, under Of course, businesses and governments had the Sarbanes-Oxley Act, accountants faced been recording business information long tougher restrictions on their consulting before the Venetians. But it was Pacioli who engagements. One of the paradoxes of the was the first to describe the system profession, however, is that accounting of debits and credits in journals and ledgers t scandals generate more work for hat is still the basis of today's accounting accountants, and demand for their services systems. continued to boom throughout the early part of the 21st century. The industrial revolution spurred the need for more advanced cost accounting systems, and the development of corporations created Functions of Accounting much larger classes of external capital providers - shareowners and bondholders - who were not part of the firm's management Recording: but had a vital interest in its results. The rising public status of accountants helped to transform accounting into a profession, first This is the basic function of accounting. It is in the United Kingdom and then in the essentially concerned with not only ensuring United States. In 1887, thirty-one that all business transactions of financial accountants joined together to create the character are in fact recorded but also that American Association of Public Accountants. The first standardized test for they are recorded in an orderly manner. accountants was given a decade later, and Recording is done in the book Journal. the first CPAs were licensed in 1896. Classifying: The Great Depression led to the creation of the Securities and Exchange Commission (SEC) in 1934. Henceforth all Classification is concerned with the publicly-traded companies had to file systematic analysis of the recorded data, periodic reports with the Commission to be with a view to group transactions or entries certified by members of the accounting profession. The American Institute of of one nature at one place. The work of classification is done in the book termed as The accounting information after being Ledger. meaningfully analyzed and interpreted has to be communicated in a proper form and manner to the proper person. This is done through preparation and distribution of Summarizing: accounting reports, which include besides the usual income statement and the balance This involves presenting the classified data sheet, additional information in the form of in a manner which is understandable and accounting ratios, graphs, diagrams, funds useful to the internal as well as external end- flow statements etc. users of accounting statements. This process leads to the preparation of the following Accounting Core Competencies statements: (1) Trial Balance, (2) Income statement (3) Balance sheet. Core competencies are specific business Analysis and Interprets: abilities used to create a competitive advantage in the business environment. A This is the final function of accounting. The competitive advantage is the ability to recorded financial data is analyzed and complete business functions, produce interpreted in a manner that the end-users customer products or provide more value to can make a meaningful judgment about the consumers better than other companies. The accounting industry often contains several financial condition and profitability of the core competencies small businesses can business operations. The data is also used establish in their company. Small business for preparing the future plan and framing of owners can also learn a few accounting core policies for executing such plans. competencies to enhance their understanding of financial information in the business Communicate: environment.
Types
Two types of accounting have distinctive
core competencies: financial and management. Financial accounting is responsible for reviewing a company’s accounting information and assessing its accuracy and validity prior to review by the business owner, directors or the general public. Financial accounting core accounting are commonly found in the cost competencies often relate to understanding allocation, forecasting and budgeting national accounting principles. processes. Management accounting is the internal business function of gathering and recording financial transactions for management review. Core competencies in management