Accounting Meaning, Definition and Basic of Accounting Systems

Accounting is the analysis and interpretation of book-keeping records. It includes not only the maintenance of accounting records but also the preparation of financial and economic information which involves the measurement of transactions and other events relating to the entity.

Accounting is defined as "the art of recording, classifying and summarizing in terms of money transactions and events of financial character and interpreting the results thereof."

In simple words we can say that-

  • accounting is an art.......
  • of recording, classifying and summarizing.........
  • in terms of money......
  • transactions and events of financial nature and
  • interpreting the results thereof.

Accounting is an art of correctly the day to day business transactions. It is a science of keeping the business records in a regular and most systematic manner so as to know the business results with minimum trouble. Therefore, it is said to be statistical procedure for the collection, classification and summarization of financial information.

"Accounting is a means of collecting, summarizing, analyzing and reporting in monetary terms, information about the business."

Now a days accounting is regarded as a "service activity". In 1970 the Accounting Principles Board of the American Institute of Certified Public Accountants enumerated that, "The function of accounting is to provide quantitative information, primarily of financial nature, about economic entities that is needed to be useful in making economic decisions."

Basic of Accounting Systems

Cash or receipt basis

Is the method of recording transactions under which revenues and costs and assets and liabilities are reflected in accounts in the period in which actual receipt or actual payments are made. "Receipt and payments account" in case of clubs, societies, hospitals etc., is the example of cash basis of accounting.

Accrual or mercantile basis

Is the method of recording transaction by which revenues, costs, assets and liabilities are reflected in accounts in the period in which they accrue. This basis includes considerations relating to outstanding; prepaid, accrued due and received in advance.

Hybrid or mixed basis

Is the combination of both the basis i.e. cash as well as mercantile basis. Incomes are recorded on cash basis but expenses are recorded on mercantile basis. The following illustration will make the distinction clear between cash and mercantile basis of accounting.