Page 12 - ISCDEBK-XI

1

C H A P T E R

Introduction to Accounting

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Accounting Accounting is the process of collecting, recording, classifying, summarising
and communicating financial information to the users.
2. Book Keeping Book Keeping is a process of recording financial transactions in a systematic
manner and classifying them into ledger.
3. Accountancy Accountancy is a systematic knowledge of accounting, i.e., it educates
about how the books of account are maintained.
4. Income Statement Income Statement is Trading and Profit & Loss Account (Statement of Profit
& Loss, in case of companies). It shows the profit earned or loss incurred by
the enterprise during accounting year.
5. Position Statement, Position Statement or Balance Sheet shows the financial position of
i.e., Balance Sheet the enterpise on a particular date.
6. Accounting Information Accounting Information is used for forecasting, comparing and evaluating the
earning capacity and financial position of the business.
7. Double Entry System Double Entry System of Accounting means a system of accounting
of Accounting whereby both, debit and credit, aspects of a transaction are recorded.
8. Single Entry System Single Entry System of Accounting is a system under which both, debit
of Accounting and credit aspects of the transactions are not recorded in all the cases. In
some cases both aspects are recorded, while in others either one aspect
is recorded or a transaction is not recorded at all. This is also known as
Incomplete Double Entry System.

CHAPTER SUMMARY

• Accounting. “Accounting is an art of recording, classifying and summarising in a significant manner and in
terms of money, transactions and events which are, in part at least, of financial character, and interpreting the
results thereof.” —American Institute of Certified Public Accountants
• “Accounting is the process of identifying, measuring and communicating economic information to permit informed
Judgement and decisions by users of Information.” —American Accounting Association
• Difference between Book Keeping and Accounting. Accounting is a wider concept which includes ‘book
keeping’. Book Keeping is mainly concerned with the recording of financial data which is one aspect of
accounting. Accounting is the art of recording, classifying and summarising in terms of money, transactions
and events of a financial character and interpreting the results thereof. Accounting begins where book
keeping ends.
• Functions of Accounting. 1. Maintaining Systematic Records, 2. Preparing Financial Statements,
3. Analysis of financial statements 4. Communicating the Financial Results, 5. Meeting Legal Requirements,
6. Protecting Business Assets, 7. Assistance to Management, 8. Fixing Responsibility.