1.Introduction:
Accounting is aptly called the language of business. This designation is applied to accounting because it is the method of communicating business information. The basic function of any language is to serve as a means of communication. Accounting duly serves this function. The task of learning accounting is essentially the same as the task of learning a new language. But the acceleration of change in business organization has contributed to increase the complexities in this language. Like other languages, it is undergoing continuous change in an attempt to discover better means of communications. To enable the accounting language to convey the same meaning to all stakeholders, it should be made standard. To make it a standard language certain accounting principles, concepts and standards have been developed over a period of time. This lesson dwells upon the different dimensions of accounting, accounting concepts, accounting principles and the accounting standards.
2.Evolution Of Accounting :
Accounting is as old as money itself. It
has evolved, as have medicine, law and most other fields of human activity in
response to the social and economic needs of society. People in all
civilizations have maintained various types of records of business activities.
The oldest known are clay tablet records of the payment of wages in babylonia
around 600 b.c. accounting was practiced in india twenty-four centuries ago as
is clear from kautilya’s book ‘arthshastra’ which clearly indicates the
existence and need of proper accounting and audit. For the most part, early
accounting dealt only with limited aspects of the financial operations of
private or governmental enterprises. Complete accounting system for an
enterprise which came to be called as “double entry system” was developed in
Italy in the 15th century. The first known description of the system was
published there in 1494 by a Franciscan monk by the name Lucas pacioli. The
expanded business operations initiated by the industrial revolution required
increasingly large amounts of money which in turn resulted in the development
of the corporation form of organizations. As corporations became larger, an
increasing number of individuals and institutions looked to accountants to
provide economic information about these enterprises. For e.g. Prospective
investors and creditors sought information about a corporation’s financial
status. Government agencies required financial information for purposes of
taxation and regulation. Thus accounting began to expand its function of
meeting the needs of 5 relatively few owners to a public role of meeting the
needs of a variety of interested parties.
3 .Definition Of Accounting:
Before attempting to define accounting, it may
be made clear that there is no unanimity among accountants as to its precise
definition. Anyhow let us examine three popular definitions on the subject:
Accounting has been defined by the american accounting association committee
as: “the process of identifying, measuring and communicating economic information
to permit informed judgments and decisions by users of the information”. This
may be considered as a good definition because of its focus on accounting as an
aid to decision making. The american institute of certified and public
accountants committee on terminology defined accounting as: “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 ”. of all definitions
available, this is the most acceptable one because it encompasses all the
functions which the modern accounting system performs. 6 Another popular
definition on accounting was given by american accounting principles board in 1970,
which defined it as: “accounting is a service society. Its function is to
provide quantitative information, primarily financial in nature, about economic
entities that is useful in making economic decision, in making reasoned choices
among alternative courses of action”. This is a very relevant definition in a
present context of business units facing the situation of selecting the best
among the various alternatives available. The special feature of this
definition is that it has designated accounting as a service activity
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