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smu mba assignments MB0041 Q1. Accounting is one of the oldest, structured management information system. Give the meaning of accounting and book keeping? Explain the objectives of accounting?

Accounting is the application of various accounting principles and methods in bookkeeping. It explains ‘why to do’ and ‘how to do’ various aspects of accounting. It tells us why and how to prepare the books of accounts and how to summarise the accounting information.

The earlier definitions of Accounting emphasised on the recording aspect. One such definition was given by American Institute of Certified Public Accountants (AICPA) in 1941.
“Accounting is the art of recording, classifying and summarizing in a significant manner and
in terms of money transactions and events which are, in part at least of a financial character, and interpreting the results there of.”

As Accounting evolved, businesses grew larger and the number of stakeholders in the business increased. The emphasis then shifted from just recording to using accounting information for decision-making by such stakeholders. Accordingly, the definitions of Accounting were modified by the professional and other regulatory bodies. Two such definitions are provided, which are the accepted definitions across the world till today.

1. Definition given by American Accounting Association (AAA) in 1966.
“Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information.”

2. Definition given by AICPA in 1970.
“Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, and about economic activities, that is intended to be useful in making economic decisions.”

Book-keeping:  It is defined as the science and art of recording business transactions in a systematic manner in certain set of books known as books of accounts. The following are the functions of book-keeping:
·                     To identify the transactions and events
·                     To measure the identified transactions and events in a common measuring unit
·                     To record them in suitable books of accounts
To classify them in a book called the ledger

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