Accounting Environment
ACCOUNTING ENVIRONMENT
Learning Outcomes
At the end of this chapter the students should be able to:
Explain the meaning and purpose of accounting
Describe the role of accounting as a information system
Describe why accounting is considered as the language of business
Assess the impact of external environmental factors on accounting
Introduction
Accounting has evolved and emerged as most other fields of human activity in response to the social and economic needs of society. Today accounting is moving away from its traditional procedural base, encompassing record keeping and related activities towards the adoption of a role which emphasizes its social importance. In this context, this introductory chapter of the course manual deals with the definition of accounting, use of accounting as an information system and the language of business, users of accounting information and the impact of external environment on accounting.
Definition of Accounting
The question what is meant by accounting has not been answered precisely. Instead there are many definitions on accounting. Some of these definitions are considered in this section to identify the purpose and functions of accounting.
The Committee on Terminology of the American Institute of Certified Public Accountants (AICPA) formulated the following definition on accounting in 1941.
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.
This definition of AICPA, USA has been quoted for many years. However, it defines accounting only from the point of view of what it does. Hence, it does not clearly establish the purpose of accounting.
On the other hand, the following definition provided by the American Accounting Association (AAA) in 1961 emphasizes the broader perspective of accounting. This definition
Learning Outcomes
At the end of this chapter the students should be able to:
Explain the meaning and purpose of accounting
Describe the role of accounting as a information system
Describe why accounting is considered as the language of business
Assess the impact of external environmental factors on accounting
Introduction
Accounting has evolved and emerged as most other fields of human activity in response to the social and economic needs of society. Today accounting is moving away from its traditional procedural base, encompassing record keeping and related activities towards the adoption of a role which emphasizes its social importance. In this context, this introductory chapter of the course manual deals with the definition of accounting, use of accounting as an information system and the language of business, users of accounting information and the impact of external environment on accounting.
Definition of Accounting
The question what is meant by accounting has not been answered precisely. Instead there are many definitions on accounting. Some of these definitions are considered in this section to identify the purpose and functions of accounting.
The Committee on Terminology of the American Institute of Certified Public Accountants (AICPA) formulated the following definition on accounting in 1941.
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.
This definition of AICPA, USA has been quoted for many years. However, it defines accounting only from the point of view of what it does. Hence, it does not clearly establish the purpose of accounting.
On the other hand, the following definition provided by the American Accounting Association (AAA) in 1961 emphasizes the broader perspective of accounting. This definition
References: American Accounting Association (1966), A Statement of Basic Accounting Theory, AAA. American Institute of Certified Public Accountants (AICPA) (1941), Review and Resume, Accounting Terminology Bulletin, No.1. American Institute of Certified Public Accountants (AICPA) (1970), Basic Concepts and Accounting Principles underlying Financial Statements of Business Enterprises, Accounting Principles Board Statement No.4, Anthony, R.N. and Reece, J.S. (1991), Accounting Principles, Richard D Irwin. Ijiri, Y. (1975), Theory of Accounting Measurement, Research Report, No. 10, AAA. Lal, J. (2005), Corporate Financial Reporting: Theory and Practice, second edition, Taxmann Allied Services (Pvt) Ltd, New Delhi.