Definition of Accounting - the Accounting Process

Definition of Accounting

Accounting is an information system that identifies, records, and communicates the economic events which is every transactions of an entity to interested users.

The Accounting Process

Accounting process involves identification of the business transaction and recording all the transactions in a systematic and orderly manner. The recorded data must be classified and summarized then account data will be communicated through the financial information users for business decision-making.

Based on the accounting cycle, we know that we need to go through the process of classifying and summarizing the accounting data that occupies the supported documentary evidence such as payment rolls, vouchers, invoices and others for the purpose of preparing ledger which is used to figure out the total effect of all transactions on the account, and trial balance to know the profit and loss and the financial position of the company for a certain period of time.

So, basically what is classification and summarizing in terms of accounting definition? Classification is the process of putting all transaction together in a specific nature of it. For example, identifying whether an item is an asset or an expense, or which costs should be included in inventory. This will enable the production of certain reports and also for the use in calculations. Classifying is mainly done in the work termed as "Ledger". It can be any kinds of ledger but the classification of the transaction's nature is the same. On the other hand, summarizing is the process involving presentation of the categorized data in suitable way to provide understanding to the management and to external users who is interested in the accounts. In this case, it involves presenting financial statements.