- The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information - American Accounting Association.
Organisations - InformationOrganisations deal with information relating to the various activities carried on (transactions that take place) as part of their operations. Some of the important reasons for which the organisations deal with information are :
Achieving ObjectivesAll Organisations (business as well as others) have objectives. The main objective of business organisations is making profits. Even Organisations like WHO have objectives. WHO works towards ensuring proper health care for all human beings.
Organisations try to achieve their objectives in an efficient manner. Efficiency in achieiving organisational objectives implies achieving them with least possible cost/resource utilisation, which requires them to optimise their operations. The information relating to the various transactions in relation to an organisation would aid such optimisation.
Meeting Statutory ObligationsOrganisations work within the purview of various statutes (laws) like company law, tax laws, mining laws etc. They, thus are under a statutory obligation to submit various kinds of information relating to their operations (incomes and expenses, financials, natural resource utilisations etc).
- To tax authorities.
- To regulatory authorities like company registrar, registrar of cooperative societies etc.
- To the ownership (share holders, partners etc.).
Handling InformationThe information relating to the various activities that take place in an organisation has to be collected and processed for being useful for the various purposes for which it is dealt with. The tasks would be:
CollectionIn the process of collecting the information relating to the various organisational activities, only that information which is made use of is collected. What information is to be collected and what is to be left out is dependent on the needs of the organisation.
Cash Receipts, Payment Vouchers, Invoices, Attendance Time Sheets, Job Cards, Goods Received Notes, Delivery Challans, Stores Issue Slips, Point of Sale Terminals are some of the tools used for collecting information.
Derivation/Extraction/SegregationAll the information collected, may not be required by all. Information that is needed may have to extracted/segregated from the collected information. Moreover, the information collected, in the format in which it is collected, may not be sufficient to meet all the needs. Additional information required may have to be derived from the collected information.
Say the tax authorities do not need the information relating to each transaction of expense and income. They only need to know the total figures relating to the various expenses and incomes (except when they have a doubt and would like to check). For this purpose, the totals of expenses and incomes should be derived.
The information collected should be processed so as to derive the information that is needed for being presented in discharge of the statutory obligations as well as for achieving the organisational objectives.
PresentationMaking the best use of the information (collected as well as derived) requires presenting it in a format that is capable of being understood by the users of the information. It would be of little or no use unless its presentation aids understanding.
This is true both in case of submission of information in discharge of statutory obligations as well as in case of making use of the information for efficient achievement the organisational objectives.
Journal, Ledger, Trial Balance, Income Statement, Balance Sheet, Cash Flow Flow Statement, Funds Flow Statement, Cost Sheet, Flexible Budgets etc are some of the statements that are used in processing and presenting information.
Accounting - Collecting, Deriving, Analysing, Presenting information
- Accounting is an activity that involves the acts of collecting information, processing the collected information to derive various other kinds of information, analysing the collected as well as derived information and presenting the same to the users of that information.
- The terms accounting and accountancy are synonymously used.
Flavours/Flavors/Fields of AccountingFinancial Accounting, Cost Accounting, Managerial Accounting etc are all different flavours/flavors of accounting. They differ from one another in the kind of information collected and processed. All these use the information relating to the operations and finances of the organisation.
The method and system for collecting information, the information derived and the way it is presented, varies, depending on the flavour/flavor of accounting and the purpose for which accounting is done.