Financial Accounting Concepts

What is the Meaning and Scope of Accounting

Meaning of Accounting

Accounting, as an information system, is the process of identifying, measuring, and communicating an organization’s economic information to users who require the data for decision-making. It identifies transactions and events pertaining to a particular entity.

The primary purpose of accounting is to safeguard the interests of the business, its owners, and others involved in business transactions. This is accomplished by disseminating pertinent information to the proprietors, creditors, shareholders, government, financial institutions, and other relevant organisations.

Definition of Accounting

According to the American Institute of Certified Public Accountants (AICPA) 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 thereof”.

It involves systematically gathering and summarizing financial data, preparing financial statements, and communicating the results to stakeholders.

Scope of Accounting

The scope of accounting is vast and covers various aspects within an organization. Some key areas include:

1. Financial Accounting and Financial Reporting: Accounting data and analytics are used to produce financial statements and reports for companies, which investors, analysts, and other stakeholders then use to evaluate the financial health of the organisation. It involves preparing financial statements like income statements, balance sheets, and cash flow statements.

2. Managerial Accounting: Concerned with providing information for internal management to aid in decision-making. This includes budgeting, cost analysis, performance evaluation, and forecasting.

3. Tax Accounting: The scope of accounting under tax accounting Involves maintaining compliance with tax regulations and preparing tax returns. Accounting for taxes involves assuring compliance with all applicable tax laws and regulations. This includes accurately calculating and submitting tax returns, making timely tax payments, and maintaining the necessary documentation.

4. Auditing: Evaluates the accuracy and reliability of financial statements through independent examination by auditors. Another main purpose of auditing is to prevent fraud and other unethical financial practices by the client organisation by its employees.

5. Forensic Accounting: Combines accounting knowledge with investigative skills to uncover fraud or other financial irregularities.

6. Financial Analysis: Involves interpreting financial data to assess an organization’s financial health, performance trends, profitability ratios, liquidity ratios, and solvency ratios.

7. Cost Accounting: Focuses on tracking production costs within an organization for monitoring expenses and evaluating profitability.

8. International Accounting: Deals with the challenges of global transactions that require adherence to different accounting rules and standards across countries.


In summary, the scope of accounting encompasses a wide range of activities related to financial reporting, internal management control, taxation compliance, auditing procedures, and analysis of financial data for decision-making purposes. Its scope extends beyond just number-crunching; it plays a critical role in helping organizations understand their financial position and make sound business decisions based on accurate information.

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