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Facts You Should Know About Financial Accounting

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Facts You Should Know About Financial Accounting by : 8:40 am On August 28, 2018

Definitions of Accounting:

The American Institute of Certified Public Accountants (AIPCA, 1961) defines accounting as “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 thereof”.

The American Accounting Association (AAA, 1966), sees accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information”.

Meigs, Meigs, Bettner and Whittington (1996) view accounting as simply “the means by which we measure and describe the results of economic activities”.

The Institute of Chartered Accountants of Nigeria (ICAN, 2006), defines accounting as “the process of obtaining, classifying, summarizing, reporting, interpreting and presenting financial information in a manner that will facilitate informed decisions by users of the information”.

Igben (2009) defines accounting as “the process of collecting, recording, presenting and analyzing/interpreting financial information for the users of financial documents”.

From all the definitions, three key phases can be identified:

  1. Data Collection Phase: This phase has to do with obtaining details of financial transactions from source documents (invoices, receipts, payment vouchers etc.) as they occur.
  2. Recording phase: Here, the accountant will classify and summarize transactions into meaningful groups and record in relevant books of accounts (journals, cash books and ledgers).
  3. Interpretation Phase: Finally, the transactions will be presented and communicated as information to those who need them. In doing this, the accountant will analyse and interpret the information in a manner that will make it comprehensible for the users of the information, who in turn, can take appropriate decisions.

I will stop here for now on this first series on the introduction to Financial Accounting which we began discussion on various definitions of accounting that are available and that you can easily lay your hands on.

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