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3/23/2009

Meaning of Accounting


Meaning of Accounting
What is accounting?
The language of business.
A means to communicate financial information.
A way to convey information about a business to users.
Need For Accounting
Accounting used for communication. It communicates the results to various parties who have some stake in the business.
It is generally associated with business.
Accounting helps in knowing the answer of various questions. (i) What he owns? (ii) What he owes? (iii) Whether he has earned a profit or suffered a loss on account of running a business? (iv) What is his financial position?
Development of Accounting
In India, Chanakya in his Arthshatra has emphasized the existence and need of proper accounting and auditing.
But, modern system of accounting origin in the 18th century.
Accounting today ,therefore, cannot be same as it used to be about half the century back.
The whole concept of accounting has changed, now it has come to recognize as a tool for solving various economic problems which a business organization may have to face.
Function of Accounting
Recording
Classifying
Summarising
Dealing with financial transaction
Analysis and Interpretation
Accounting Cycle
Transaction or event occurs
n Could simply be the passage of time.
Recorded in the Journal using a Journal Entry.
n event is translated into accounting language.
Journal is posted to Ledger
n the information from all the journal entries in the period is aggregated.
Ledger accounts are totalled.
Financial statements are prepared.
Accounting as an Information System
Accounting provide information to vested interest in a business organization -manager,shareholder,employee,creditor,etc. Various parties are interested to know about the activities of business.
Managers
Shareholder and investor
Employees
Creditors
Government

Accountancy, Accounting and Book keeping
Accountancy :It refers to a systematic knowledge of accounting. It explains ‘why to do’ and ‘how to do’ of various aspects of accounting. It tells us why and how to prepare the books of accounts and how to summarise the accounting information and communicate it to the interested parties.
Accounting : It refers to the actual process of preparing and presenting the accounts. In other words it covers the following :

› Identifying the transactions and events
› Measuring the identified transactions and events
› Recording the identified and measured transactions and events in journal

Objectives of Accounting
To keep systematic records.
To calculate profit and loss.
To ascertain the financial position of the business.
To facilitate rational decision making.
Availability of information to Interested parties.

Advantage of Accounting
Assistance to management
Replacement of Memory
Comparative study
Settlement of tax liability
Evidence in court
Sale of business
Limitation of Accounting
Accounting is not fully exact.
Accounting does not indicate the relisable value.
Accounting ignores the qualitative element.
Accounting ignores the effect price level changes.
Accounting may lead to widow dressing.
Role of Accountant
Accountant are the person who practice the art of accounting. It can be broadly classified into two categories.
Accountant in Public Practice
Accountant in Employment
Accountant in Public Practice :- They offer services for conducting financial audit,cost audit,designing of accounting system and rendering other professional services for a fee.In our country, there are two recognized professional bodies:1) Institute of Chartered accountant of India 2) Institute of Cost and Work accountant
Accountant in Employment:-They are those persons who are employed in non- business entities like Educational institutes, Government, Churches,Hospitals, etc. Their object is not to earn profit. The accountant employed by these entities called management accountant
Conclusion
In the end, it is said that importance of accounting is increasing day by day. Now a days the properly maintained account give the answer of a number of question. Thus, business owner can take important decision with the help of information's provided by accounting data.
Student of Rai Business School-New Delhi

Sanjeev Kumar Singh

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