Well, the textbook definition goes something like “Accounting is the art of recording, classifying and summarising in a significant manner …” and, you can look it up from the reference section at the end.
We’ll try to keep things simple here. So, let us ask once more: What is accounting?
At its heart, accounting is simply a habit.
Yes, a habit! Of keeping a proper record of all business transactions.
And, why should we develop this habit?
- First, because people are forgetful. We all know how awful it’ll be if we forget to pay our electricity bills on time. A businessman too, has many such bills and expenses to take care of.
- Second, recording things as we go along is likely to save us from taking careless decisions. Suppose, I have big plans of purchasing land and building factories but it’s all in vain if my suppliers are awaiting their payments and my bank balance doesn’t look good.
- Third, I, as a businessman, would like to know the exact amount of profit I made during the year for which, a proper record of my business incomes and expenses is automatically a must.
With all these in mind, I would like to present the following definition of accounting:
Accounting is a habit; a habit of keeping a proper record of all business transactions for the businessman to later check the profits and stability of his business.
– Prithvi J., 2024.
Now that we’ve understood the importance of keeping a proper record of our business transactions, we must first ask: What does a business transaction mean? Is it different from a normal transaction or exchange we undertake as consumers? If so, how do we identify whether a transaction relates to business or not?
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Reference
Accounting definition from NCERT textbook. Topic 1.1 Meaning of Accounting.
https://ncert.nic.in/textbook/pdf/keac101.pdf
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