Although it is a common perception that accounting is all about numbers, the field of accounting

encompasses broader issues than merely numbers. Accounting is defined as the process of

identifying, measuring, recording and communicating economic information to assist users of the

information in making informed economic decisions.

Based on the definition above, there are four elements of accounting associated with providing

information that is useful for decision-making.

Identification

involves selecting economic events

that are relevant to a particular entity. Even though the economic events eventually need to be

expressed in measuring unit (numbers), the identification process itself requires knowledge about

the entity and its operations rather than just looking at the numbers.

After the identification of the transaction, accounting information must be expressed in a

common denominator so that the effects of transactions can be combined. This is where

measurement

takes place. It is true that measuring economic events mostly involves numbers,

however it also requires knowledge of various measurement techniques, relies on judgments and

assumptions, and involves knowledge of relevant accounting standards.

Economic events or transactions that have been identified and measured are then maintained

systematically through

recording

process. In order to be useful in making decisions, recorded

data must be classified and summarised.

Finally, classified and summarised accounting data need to be communicated to the potential

users of the information. The

communication

process consists of placing accounting information

into financial reports and preparing interpretive disclosures necessary to make the date

understandable. For accountants to be able to help users of the reports to make economic

decisions effectively, the accountants who prepare the reports must have a full appreciation of

who the users are and their needs for accounting information.

In conclusion, it is a misunderstanding that accounting is all about numbers. Many people with

limited knowledge of accounting tend to view accounting as limited to recording numbers and do

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not comprehend the whole processes involved in accounting as described above, which requires

extensive training, business experience and professional judgment rather than merely calculating

numbers.

Exercise 1.5

Making an economic decision

You have decided that now is the time to buy a new laptop. List the factors that are important in

choosing a new laptop and gather relevant information from various sources about different models

on the market. Given that you have a maximum of $1600 to spend, identify which model you would

buy and discuss the reasons for your choice. Present your answer so as to illustrate the steps required

in the decision-making process as discussed in this chapter.