What is Financial Accounting?

What is Financial Accounting?

Definition 1:  According to American institute of certified public accountants accounting is the art of recording, classifying, and sum in a significant manner and in terms of money, transactions, and the events which are in part, at least of a financial character and interpreting the result.

Definition 2:  According to the accounting principal board of AICPA accounting is the process of identifying, majoring, and communicating economic information to permit inform judgement and decision by users of the information.  

Definition 3:  Accounting is a means of majoring and reporting the results of economic activities.

What is Accounting or Book Keeping?

Book keeping may be defined as an art as well as science of recording all the financial transactions and dealing systematically in the set of books.

System of Book Keeping:

Under this system every business transaction has two fold effects i.e. it touches to accounts at a time. If one account is debited, the other account will have to be credited with the same amount.

For Example: 

If goods are purchased for cash it means good are coming in the business and cash is going out of the business. Hence, purchase account will be debited and cash account will be credited.

Double entry system is used by most of the accountants as it is the only system that fulfills all objectives of systematic accounting.

Accounting Equations:

Assets = Liabilities + Capital

Liabilities = Assets - Capital

Capital = Assets - Liabilities


What is Single-Entry System?

This system may be turned as an incomplete double entry system. This system has been developed by some small scale business concerns for their convenience. They only keep essential records. This system is not reliable because all the business records are not kept.

According to Kabler, it is the system of book keeping in which has a rule only records of cash and personal accounts are maintained, it is always incomplete double-entry varied with circumstances.