Introduction to Accounting

Topics: Generally Accepted Accounting Principles, Balance sheet, Matching principle Pages: 3 (448 words) Published: February 6, 2010
Prepared By- H.R.Sampath

Introduction To Accounting

Definition for Accounting

There are so many definitions for accounting.
For example;

• American Accounting Association (AAA) has defined accounting as; "The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information"

• SBA Administration Loan Terms
"Accounting is an art of recording, classifying, summarizing and interpreting financial events and transactions in a significant manner and in terms of money."

In general Accounting can define as;

It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information.

Function of Accounting

Mainly there are two functions of accounting.

1) Information Function
Accounting gives information to control of resources or assets of the organization. it means, by accounting it provide information to the management about the status of limited resources. E.g. : Cash Book – Control of cash transactions.

Debtors & Creditors – Control of credit sales and credit purchases of the organization

2) System Function
Another function of accounting is to design systems and procedures to control of limited resources. E.g. : Payment system
Debtors control system
Inventory control system

Accounting Assumptions
There are mainly four accounting assumptions.

1. Separate entity assumption
Business / firm is considering as a separate accounting entity which is distinct from its owners / share holder or members. For example if owner takes goods or cash from the organization, accounting treats it as drawings. And if an owner / share holders bring capital to the organization, then it will show as a Capital or equity account.

2. Going Concern
It is assumed that the company has unforeseeable future. It means, in minimum that the company will be...
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