Accounting is a language of business. There are many variations in the definition of accounting as it is defined by various authors and authorities in different ways. According to American institute of certified public accountants: Accounting is the science of recording and classifying transactions and events, primarily of a financial character and art of summarizing in a significant manner, analyses and interpretations of those transactions and events and communicating the results to the persons who must make decisions or form judgment. Most of the people treat accounting both as science and an art. It is called as science because the record is maintained according to some fundamental principles and art because, it is a part of knowledge which enables us to reach our goals and also tells us the manner in which we may attain our objectives and goals in the best possible manner.
At first, the chief objective of accounting was merely to ascertain profit or loss for a year or some other period and to ascertain financial state affairs at a particular point of time. But as the scale of operations increased, the accounting is used to serve several purposes such as maintaining records of business, providing reports depicting the financial position of the firm, helps the stakeholders in monitoring activities and performance of the firm, enables the investors to analyze and evaluate the organization, management also needs a good deal of information, which is made available by accounting. The changing business scenario has given rise to specialized branches of accounting to cater the changing requirements. The branches of accounting are - Financial accounting, Cost accounting and Management accounting. Financial accounting is the original form of accounting and it is concerned only with financial state of affairs and financial results of operations. In a view of limitations of financial accounting in respect of information relating to cost of individual products Cost accounting was developed. Its main aim is to analyze the expenditure involved so as to ascertain the price of various products manufactured and fix their prices. Another branch of accounting is Management accounting. It is recently developed and its main purpose is to provide necessary information about funds, costs, profits, etc. as will enable management to discharge its functions properly.
Accounting is an information process and its practitioners are known as Accountants. The main aim of accounting is to provide economic information and mainly there are four types of accounting information i.e.
(1) Information about the performance of the enterprise.
(2) Information about financial position.
(3) Information about retained earnings and
(4) Information about Cash Inflows and Cash Outflows. This financial information must have a quality to be of use for the users and the principal qualitative characteristics are understandability, Relevance, Reliability and Comparability.
Besides the helm of affairs of the business, there are various other parties which are interested accounting information of the business. These are owners, investors, creditors, lenders, employees or workers, managers, government and researchers. The function of accounting is to communicate the financial facts about an enterprise to various interested parties. It’s purpose is to enable these interested parties to take sound and realistic economic decisions.