According to The American Accounting Association, an accounting is "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information”
The above definition suggests that an accounting is all about providing information to internal and external customer. The accounting information can be both financial and economic information. All these information’s are then identified and measured via set of accounts known as double entry bookkeeping.
John started a business with $5,000 capital and later at the end of the month he found that he has $7,000.
This statement will reflect John has incurred profit of $2,000. If at the end of the month John earns $4,000, this statement will reflect john has a loss of $1,000. This explains in this case the transactions in the capital of firm increased, John makes profit and if capital of firm decreases John makes loss. It describes how much capital is invested and earned so, with the purpose of giving such information the accounting came into existence.