ACC 103- Introduction to Accounting Principles

Meaning and Scope of Accounting Accounting is the language of business. The main objective of Accounting is to safeguard the interests of the business, its proprietors and others connected with the business transactions. This is done by providing suitable information to the owners, creditors, shareholders, Government, financial institutions and other related agencies. Definition of Accounting The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of the information." According to AICPA (American Institute of Certified Public Accountants) it is defined as "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 result thereof." Steps of Accounting The following are the important steps to be adopted in the accounting process: (1) Recording: Recording all the transactions in subsidiary books for purpose of future record or reference. It is referred to as "Journal." (2) Classifying: All recorded transactions in subsidiary books are classified and posted to the main book of accounts. It is known as "Ledger." (3) Summarizing: All recorded transactions in main books will be summarized for the preparation of Trail Balance, Profit and Loss Account and Balance Sheet. (4) Interpreting: Interpreting refers to the explanation of the meaning and significance of the result of finanal accounts and balance sheet so that parties concerned with business can determine the future earnings, ability to pay interest, liquidity and profitability of a sound dividend policy.