Chapter 1 - Theoretical Framework : Unit 1 - Meaning and Scope of Accounting - PART 1

• Definition of Accounting :

The Committee on Terminology of American Institute of Certified Public Accountants defined accounting as 

"Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and event which are, in part at least, of a financial character, and interpreting the result thereof "

• Procedural Aspects of Accounting :

Generating Financial Information	Using Financial Information
1. Recording  - Journal and Subsidiary Books *	Internal and external users use the financial information for their benefit
2. Classifying - Ledger - info in compact and useful form *
3. Summarise - TB, PL, BS, CFS
4. Analysing - Classification of data in Financial Statements - establish relationship between BS and PL
5. Interpreting - meaning and significance established in (4), to enable end users to make judgement about financial position and performance
6. Communicating- transmission of summarised, analysed and interpreted information to end users through reports
Note 1* -  1 and 2 above is known as 'Book keeping' Note 2 - Remember your college example shared in class : Enquiry by parents, student registration by paying college fees, transactions such as purchase of benches, payment of salary to teachers etc and its accounting

• Evolution of Accounting as a Social Science
• Wealthy men employed stewards / managers to manage property. These stewards rendered account periodically - which became root of financial Accounting system
• Joint stock companies started to be formed where various investors started to invest in business - separation of ownership from management. To safeguard interest of investors, shareholders - Financial Statements and its reporting arose
• Social Responsibility Accounting developed - when harmful products started to be produced
• Social science studies man as a member of society. It pertains to social relationships and usefulness of such relationships. Since accounting is beneficial to various stakeholders in the society, it serves social purpose and hence, contributes to social progress, thus making it a social science

• Objectives of accounting (What is going to be achieved from accounting)

• Systematic recording of transactions : Book keeping ie records and classifies transactions that are useful for preparation of Financial Statements, its analysis and interpretation
• Ascertainment of results - financial performance through Profit and Loss account
• Ascertainment of financial position - to know what business owns (asset) and what is owes (liability)
• Ascertainment of solvency position - along with financial position, management gives information about organisation's ability to meet liabilities as and when it falls due in 
• short run  - its liquidity position and
• long run   - its solvency position
• Providing information to users for rational decision making - Accounting is known as 'language of business' as it communicates financial results through Financial Statements that meets the information need of users for their decision making