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Definitions of accounting
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
Committee on Terminology of the American Institute of Certified Public Accountants (1953)
Definitions of accounting (contd) The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information
American Accounting Association (1966)
Types of scales
A nominal scale assists in determining equality An ordinal scale assists in determining greater and lesser An interval scale assists in determining the equality of intervals or differences A ratio scale assists in determining the equality of ratios
Double-entry accounting
Type 1: Classificational doubleentry accounting Aims to maintain the fundamental accounting equation:
Special GAAPs
Changing perceptions of GAAPs Not seen as a rigid set of measurement rules Their numerous applications differ, depending on the circumstances There are individual GAAPs for: business enterprises government organisations regulated business enterprises non-profit organisations investment companies banks
Private companies
The ICPA Technical Issues Committee recommended changing or eliminating 11 accounting and disclosure requirements for private companies: leases capitalisation of interests imputed interests compensated balances business combinations troubled debt restructuring research and development costs discounted operations tax benefit of operating loss carried forward deferred income taxes investment tax credits
Income smoothing
Income smoothing represents an attempt on the part of the firms management to reduce abnormal variations in earnings to the extent allowed under accounting and management principles (Beidelman) AASB 1001 tries to prevent income smoothing by requiring, upon a change in accounting policy, disclosure of: the nature of the change the reason for the change the financial effect of the change