In literature the formal definition of accounting is described as an art of recording, classifying, summarizing, and reporting of business transactions in order to express the operational performance in financial terms and financial position of an entity which may be a business enterprise or a non-profit organization. Many authors apprise accounting as a mechanism of principles, rules, standards, convention, and globally established broad-spectrum process of dealing with financial information related to the resources of an entity and their use in meeting the objectives set by the entity. It works in all types of organizations.
Primarily accounting interacts with such information related to business which is measurable in numbers or in financial or monetary term. The flow of accounting includes gathering, assimilating, quantifying, recording, evaluating, analyzing, and reporting the economic or financial information about an enterprise. It concerns with provision of reliable, useful, and concrete financial information in universally accepted and understandable format to enable the users of such information making better and informed decision.
Functions of Accounting
- It serves as tool of efficient management and optimum use of the resources of an organization.
- It accurately measures the claims or interests of various stakeholders against the resources of an organization.
- It correctly assesses and determines the changes in the resources along with changes in the claims and interests on those resources.
- It perfectly assigns the above changes to the relevant periods and appraises the performance of the individuals engaged in managing the resources.
- It determines the fitness of an organization.
- It discharges all the above obligations in monetary terms.