This following discussion on Accounting will make you understand following questions:
- What is Accounting
- Definition of Accounting
- What do you mean by Accounting System
- What is Accounting Information System
Accounting can simply be defined as an Information System. The term which are related with the definition of accounting are financial activities, identifying, recording, communicating and decision making. In one sentence Accounting can be defined as information system which maintains the process of identifying and measures the quantitative financial activities and communicate these financial reports to the decision makers or to the interested users of any organization. Financial activities of accounting are related with the effective decision making. Financial activity is the branch of accounting which manifests the effective decision making by providing useful information in monetary amount to the decision makers. Basically decision making involves financial planning, earning, expenses, loans, payments, investments and deciding of any process of business transaction which are based on information system and this information system is referred as Accounting System.
The financial reports are communicate to the decision makers in the form of two financial reports-internal and external. Internal reports are used by the internal users who run, plan and organize the business inside the organization. The examples of internal users are director, manager, supervisor, accountant etc. External reports are used by external users who want financial accounting information about individual and organization. Examples of external users are investors, creditors etc.
Sometimes people get confused with the term bookkeeping. Although both these terms bookkeeping and accounting are quite same but there are some differences. Bookkeeping is also the process of recording financial activities or economic events. Bookkeeping is the procedural part of accounting system which only records the economic activities but accounting system involves bookkeeping, identifying, communicating and decision making.
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