The Scope and Nature of Accounting

Accounting has a broad range of operation in socio-economic environment. Therefore, the knowledge that is required from an accountant cannot be compartmentalized sharply. It thus becomes difficult to discuss one aspect of it without relating it to other aspects of knowledge. Great emphasis has to be placed on conceptual knowledge. An accountant is required to not only know, but also understand.

It can be seen that defining accounting is a rather difficult task. Accounting has been defined by many accountants in various languages. Most often, it is regarded as the science of classifying, recording and summarizing of transactions in a way that relation with outsiders gets exactly determined and the result of operation within a particular period gets calculated. Also, at the end of the period, the financial position is to be shown.

Nature of Accounting

It is known that accounting involves systematically recording financial transactions as well as presenting related information of appropriate persons. Following are the basic features of accounting:

• A process: A process is a method of performing a specific job in a step by step manner as per the objectives or defined target. Accounting is referred to as a process since it performs the precise task of collection, processing and communication of financial information. To do this, it follows a specified set of steps including collecting data, recording, classifying, summarizing, finalizing and reporting.
• An art: Accounting is defined as the art of recording, classification, summarization as well as finalization of financial data. The term ‘art’ refers to the method of performing something. It is behavioral knowledge that involves certain creativity as well as skills that help in obtaining specific objectives. By nature, accounting is considered an art, since it is a systematic technique that consists of definite methods and its accurate application requires applied expertise and skill.
• A means an not an end: Accounting is used to find out the financial results as well as position of an entity and at the same time, it is used for communicating this information to the users. The users can then take their own decisions on the basis of provided information. Thus, it can be said that the primary objective of any entity or person is the mere keeping of accounts. However, mainly the objective may be regarded as taking decisions based on the financial information that is supplied by accounting. It can be seen that accounting in itself is not an objective, but it helps in attaining specific objectives. Thus, it can be regarded as the means to an end but not an end itself.
• Deals with financial transactions and information: Accounting records the date and financial transactions after classification of the same, and finalizes the result for a specific period before conveying it to the users. Thus, from start to end, at all stages, accounting involves dealing with financial information. Its subject matter is financial information. It has no non-financial aspect and does not deal with non-monetary information.
• An information system: Accounting is characterized and recognized as a storehouse of data. As a service function, it involves collection, processing and communicating of financial information of every entry. It is a discipline of knowledge that has been evolved to meet the need of financial information that is required by various interested groups.

Scope of Accounting

Accounting has a wide area and scope of application. The use of accounting isn’t confined to merely the business world, but is spread all over in the spheres of society as well as in all professions. In the current times, financial transactions are necessary in any professional activity or social institution, whether it is earning profit or not. Thus, a need arises to record and summarize these transactions as they occur. There is also a requirement for interpreting and communicating this information to appropriate people. Accounting is the only answer to these requirements.

Currently, accounting system is practiced not just in business institutions but also in plenty of non-trading institutions such as schools, cooperative societies, charitable trust clubs, hospitals and colleges. Professionals such as medical practitioners, chartered accountants and practicing lawyers also adopt accounting methods that suit them.