Accounting is the science and art of systematically recording, classifying and summarizing the financial transactions or events of a business in a set of books. A business transaction means the exchange of money or items of value between two or more people.

Spicer and Pegler defined bookkeeping as the systematic recording of transactions in a manner that clearly reveals a company’s financial relationships with other people and correctly determines the cumulative effect of a transaction on the company’s financial position. JR Baltiboi has observed that bookkeeping is the art of recording business transactions in a set of books.

Recording of business transactions involves: analyzing the transactions from the source document, recording those transactions, publishing them in a ledger, etc. All business transactions are first entered in the journals. All of these various types of entries need to be classified. This is accomplished by opening different accounts on separate pages in the ledger and then posting various ledger entries to the corresponding accounts.

A ledger account is a record of debits, credits, and balances for each individual account: assets, liabilities, and income and expense items. Each account in the general ledger represents a summary record of all transactions related to that particular account. The importance of the general ledger as the main book of accounts lies in the fact that the figures that appear in financial statements, such as balance sheets and profit and loss accounts, are derived from the general ledger. A general ledger, along with cash and bank books, forms a complete set of business accounts.

Accounting is the foundation of the accounting process, as financial accounting includes interpretations of the details generated by accounting.