What is contability?
A simple definition is the recording of financial or monetary transactions. It is not necessary to record all transactions. Mostly only business transactions are recorded, personal transactions are rarely recorded by individuals.
For example, you buy a book for $10. You give the bookseller $10; you receive the book and a receipt for $10. Most of the time you throw away the receipt; you just want to read the book. However, the bookseller is operating a business, so the transaction will be recorded.
The book seller will record the $10 as a cash sale and at the end of the day total all book sales in cash. That’s easy, count the money in the register minus the floating amount at the beginning of the day and you have the total sales for the day. The bookseller now has a problem, how many books were sold, which books were sold, and was there a profit that day?
Does it matter? It does so if the book seller wishes to continue in business. This is where the accounting system or process starts to get a little more complicated.
The bookseller now has a few things to sort out. How many books were sold is relatively easy, 45 transactions per day, so 45 books were sold today. All at $10, unlikely, so the bookseller needs an accounting system to record or display this information. This accounting system must show which books were sold, at what price, and how many were sold.
The book seller needs this information because there will be more sales tomorrow. If there were 10 books titled “Book 1” today and four sold, there will only be six on the shelf tomorrow. If four more are sold tomorrow, there will be two left the day after tomorrow. If customers walk into the bookstore to buy “Book 1” and it is not available, they will go elsewhere to find it.
It may take a week to receive more books after placing an order.
Therefore, the accounting system must show the bookseller when more books should be ordered, not just how many were sold and at what price. In the “Book 1” example, the book seller will need more books to arrive tomorrow or early the next day so that they don’t miss out on any book sales. The new book order would have to have been placed a week ago for there to be no loss of book sales.
How much did the bookseller pay for the books? That information must also be available to show whether a profit is being made. The simple transaction of a $10 sale is not so simple for the book seller.
Accounting is much more than just recording a financial transaction. Accounting must be able to provide more information than the financial amount of the transaction alone.
A better definition would be that accounting is the process of recording all aspects of money transactions from a point of financial, physical and non-financial information.
Keep in mind that not all transactions are completely money, so even the best definition is not complete when it comes to an accounting definition. Accounting involves so many different business areas that any given definition will always be open to debate, especially among accountants.
