Definition and Importance of Accounting and Accountancy

 Definition of Accounting

Though accounting has been variously defined, according to one commonly accepted definition.
Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money, transactions, an events which are, in part, at least, of financial character and interpreting the results thereof". Another definition which is less restrictive interprets accounting as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of information".

Definition of Accountancy

One often hears the words "Accountancy" and "Accounting" as if they are one and the same thing. Of course there is some difference between them, at least in the United Kingdom to which the practice of accountancy in Nigeria is closely associated. Accountancy is the work or profession of an accountant

Importance of Accountancy

While discussing the definition of Accounting, you must have observed that accounting involves a series of activities linked with each other beginning with recording, classifying, summarising, identifying, measuring and finally communicating information to its users. Information has no meaning unless it is linked with a certain purpose. Accounting as a social science can be viewed as an information system since it has all the features of a system. If we consider accounting as an information system, then we are in a position to make some important observations. First, the goal of the system is to provide information which meets the needs of its users. Secondly, it is the output requirements that determine the type of data which would be selected as the inputs which would be selected as the inputs for processing into information output.

We shall now briefly discuss what the information needs of various users are.

Shareholders and Investors

Since shareholders and other investors have invested their money in a business enterprise, they are interested in knowing periodically about the profitability of the enterprise, the soundness of their investments and the growth prospects of the enterprise. Historically, business accounting developed to supply information to those who had invested their funds in business enterprises.

Creditors

Creditors may be short-term or long-term lenders. Short-term creditors include suppliers of materials, goods or services. They are normally known as trade creditors. Long-term creditors are those who have lent money for a long period, usually in form of secured loans.

The main concern of the creditors is focused on the credit worthiness of the firm and its ability to meet its financial obligations. They are, therefore, concerned with the liquidity of the firm, its profitability and financial soundness.


In order words, it can also be state that creditors are interested mainly in information which deals with solvency, liquidity and profitability so that they could assess the financial standing of the firm.

Employees

Employees are interested in the financial position of the business they serve particularly when payment of bonus depends upon the size of the profits earned.

Government

In a mixed economy, it is considered to be the responsibility of the Government to direct the operation of the economic system in such a manner that it subserves the common goal. Controls and regulations on the operation of private sector enterprises are the hallmark of mixed economy. Several government agencies collect information about various aspects of activities of business organisations.


Much of this information is a direct output of the amounting system. For example, levels of outputs, profits, investments, costs, and taxes etc. All this information is very important in evolving policies for managing the economy. The task of the Government in managing the industrial economy of the country is facilitated if amounting information is presented as far as possible, in a uniform manner. It is clear that if accounting information is distorted due to manipulations and window - dressing in the presentation of annual accounts, it will have ill — effects on the measures the government intends to take and the policies it wishes to adopt.

Management

Organisations may or may not exist for the sole purpose of profit. However, information needs of the managers of both kinds of organisations are almost the same. All these functions have one thing in common and it is that they are all concerned with making decisions which have their own specific information requirements. The emphasis on efficient and effective management of organisations has considerably extended the demands for amounting information.

Consumers

Consumers are interested in the establishment of good accounting control so that cost of production may be reduced with the resultant reduction on the process of goods they buy.

Research Scholars

The financial statements, being a mirror of the financial position of a firm are of immense value to the research scholar who wants to make a study into financial operations of a particular firm.

SELF-ASSESSMENT EXERCISE

• Define Book-Keeping Accounting and Accountancy.
• Apart from the points listed above in this unit, mention two other users of accounting information you know and explain the benefits they derive from this information.

CONCLUSION

In this unit, the discussion perhaps has indicated to you that the information needs of the various users may not necessarily be the same. Sometimes, they may even conflict and compete with each. In any case, the objective of accounting information is to enable information user to make optimum decisions.

SUMMARY

Accounting is an important service activity in business and is concerned with the collecting recording, evaluating and communicating the results of past events.

Accounting is the language .employed to communicate financial information to various categories of users (e.g. Shareholders, Creditors, Employees, Government, Management and consumers etc.) who are interested in such information.

TUTOR-MARKED ASSIGNMENT

•  State the group of persons having an interest in a business. 
• organisation and examine the nature of their information needs.
•  After going through the above unit and sonic of the recommended books, you are now in a position to describe as to who is an accountant.