ACCOUNTING

MEANING OF ACCOUNTING : Accountancy refers to the entire body of the theory and practices of accounting. The term accountancy is a broader term and can be divided into TWO PARTS: 1) BOOKKEEPING 2) ACCOUNTING

MEANING OF BOOKKEEPING:

The art of keeping books accounts in a regular and systematic manner.

MEANING OF ACCOUNTING:

At the end of each year all the businessmen want to know how much they have gained or lost during the year . It measures the various economic activities which affect inflow and outflow of resources to develop useful information.

Nearly every business enterprise has an accounting system .It is a means of collecting ,summarizing ,analyzing and reporting in the monetary terms ,information about business. (R.N ANTHONY)

DEFINATION OF ACCOUNTING:

FEATURES / CHARACTRTERSTICES : 1) FINANCIAL CHARACTER :

Accounting involves only those transactions and events which are of financial nature and can be expressed in terms of money or moneys worth and the information which cannot be expressed in money or moneys worth cannot be included in the books of accounts , such as , strikes, lockouts, relations between personnel ,etc.
2)

After identification of information of financial character ,those are recorded in the books of accounts .The primary book of account is known as journal in which first of all the information is recorded. If the number of transactions is very large ,then it may be further subdivided into various books ,known

RECORDING:

as subsidiary books .The subsidiary books contains cash book ,Purchase book, Purchase return book ,sales book etc. These books contain specific transactions as per their names.
3)

The next step is the classification of data . Classification means grouping of same nature data at one place called Accounts . The book in which the different accounts are maintain is known as Ledger. Separate accounts are opened for different persons , expense, incomes ,assets and liabilities on the different pages of ledger. FOR EXAMPLE: Purchase account in the ledger.
4)

CLASSIFICATION:

Summarizing means to make a summary of the work we have done. In accounting terminology, Summarizing means the presentation of data in a manner which can be easily understood by average person. This process involves the

SUMMARISING :

preparation of trial balance ,trading and profit /loss accounts and balancesheet.
5)

The account do not speak by themselves, Rather they are to be analyzed and interpretated .A very common tool for analysis is ratio analysis . The other tools like cash flow statement , fund flow statement , ratio analysis are used. They analysis and use of tools depends upon the purpose and requirement of the interested party.
6)

INTERPRETATION :

Communication refers to the transmission of information to the interested party so that they can take the various decisions.

COMMUNICATION :

BRANCHES TYPES/SCOPE OF ACCOUNTING

The cut throat competition and the complex nature of business requires the different types of information needed by the management to perform more efficiently and effectively.
1)

Financial accounting concentrates concentrate on providing the financial information to the external parties , such as creditors , investors ,lenders, Government banks etc. It deals only with those transactions which have already occurred in the past. The objective of the form of accounting is to keep records of transactions to know the income or loss and the financial position of the business.
2)

FINANCIAL ACCOUNTING :

The cut throat competition has given the birth to cost accounting .It deals with cost ascertainment and cost control. The main objective of cost accounting is to know the total cost and cost per unit of the goods or services provided by a business.

COST ACCOUNTING :

3)

As the name tells, it is the specialized accounting for the management as the information provided by the financial accounting is not sufficient for planning, control and decision- making . The basic objective of management accounting is to present the accounting information in such a way which can assist the management in smooth, orderly , and efficient conduct of business.
4)

MANAGEMENT ACCOUNTING :

The accounting which deals with calculation of tax liability ,filling of returns and other tax matters .Tax accounting deals with all type of tax liability , such as income tax ,sales tax, etc.
5)

TAX ACCOUNTING:

The social responsibility accounting is the process through which social effects of business decisions can be identified. Social contribution includes the financial help for public programmers, employment, product satisfy ,environmental contribution , customer satisfaction etc.

SOCIAL RESPONSIBILTY ACCOUNTING:

6) HUMAN RESOURCES ACCOUNTING:

HRA involves the application of economic and accounting conce pts to the personnel management .

The process of identifying and measuring data about human resources and communicating this information to interested parties.

IMPORTANCE OF ACCOUNTING
knowledge of financial position . Helpful in raising loans . Proof in court. Helpful in comparing. Useful for other parties.

There are two types of user , namely internal and external who use the accounting information in order to satisfy their varying nature of requirements . 1)INTERNAL USRER :

USERS OF ACCOUTING INFORMATION:

Internal user are those which are inside the business i.e managers ,owners , partners ,and the employees. They need accounting information for detail purposes.

THE DETAILS ARE AS FOLLWS:

A)

Owner(s) refer to a person or a group of person who have joined hands to supply the capital needed to run a business and to share the profit and loss earned from the business .The profitability and financial soundness is of prime importance to the owners who have invested their hand earned money in the business. They want to know whether the money is invested is safe or not, what are the returns on the money invested and whether their money will grow in the shape of increase in share price or not.
B)

OWNER :

Managers need a lot of information and that too of various types for smooth and profitable running of the business . Some of their need is fulfilled through published accounts such as profit and loss account , Balance sheet and cash flow statement .All the information is required by the management for future planning , controlling ,and decision making.
3)

MANAGER :

The employee of a business concern are interested in the financial statement on account of profitability and stability . If the enterprise is earning good profits , they will be secure and also they can demand higher salary , remuneration and bonus .Also under ESPO

EMPLOYEES :

(employee stock option scheme) ,they can purchase the shares of the company at cheaper rates and can take the benefits by selling them at higher price in the open market .Thus they can draw conclusions about all these by analyzing the financial statements.

The persons or organization who directly or indirectly have interest in the activities of a business concern but are the part of the organization are known as External user .

EXTERNAL USER :

THE DETAILS OF SUCH USERS IS AS FOLLOW :

1)

Potential investors need information to judge the past performance of the business enterprise for making investment in that company for making investment in that company.
2)

POTENTIAL INVESTORS :

Creditors and financial institutions include those who extended credit to the business . The creditors would like to know about the repaying capacity and credit worthiness of the business

CREDITORS AND FINANCIAL INSTITUTION :

enterprise to ascertain whether the business will be in a position to meet its commitment towards payment of interest and capital.
3)

Customer need information about the future directions of the business with which they are associate themselves . Customer who express their loyalty to a business by associating themselves want to know about the continuance of the business.

CUSTOMER :

4) SOCIETY :

Business user scares resources. These resources are related to the society .Therefore , an enterprise affects the society in several ways such as pollution ,amenities in locality ,employment and as a customers to local suppliers .

5) TAX AUTHORITIES :

Tax authorities like income the tax and sales tax need the information about the profits and sales of a business concern for the assessment of income tax ,value-added tax and service tax etc .For this purpose ,the authorities use published financial statement.

7)

Government is also interested in the financial statements of the business enterprises on account of various policies framed by it and to watch over the implementation of labour and corpate laws. Information about past and present performance is provided by the financial accounting .
8)

GOVERNMENT :

The financial statements are also used by various researchers for testing of various hypothesis and development of theories and models.

RESEARCHERS :

ADVANTAGES / USES OF ACCOUNTING :

1)

Increased volume of business results in large number of transactions and therefore it is not possible for any businessman to remember everything .Accounting records obviate the necessity of remembering various transactions.
2)

OFFERS A COMPLETE AND SYSTEMATIC RECORD :

PROVIDES A HELPFUL HAND TO MANAGEMENT :

In the daily course of business , management need a lot of information to run the business smoothly and efficiently For example: Management would like to know whether the cost of production is reasonable of excessive or how good or bad is the financial condition of the business or in the light of the past performance of the business.

Accounting records , prepared on the basic of uniform practices , will enable a business to compare result of one period with another period and of a firm of an industry . Such a comparison helps the management in taking important decision for the future .
4)

3) FACILITIES COMPARATIVE STUDIES :

Taxation authorities are likely to believes the facts contained in the set of accounting books if maintained according to generally accepted accounting principles .

FACILITATES ASSESSMEMT OF TAX LIABILTY :

5) EVIDENCE IN COURT OF LAW :

The accounting records backed up by proper and authenticated voucher are good evidence in the court of law.

6)

Banks and financial institution screen various financial statements to take stock of financial position of the firm before sanctioning a loan . Therefore, financial accounting also helps the firm in raising the various types of loans.

FACILITATES RASING LOANS :

The purchase price or selling price of the business is determined on the basis of accounting information provided by financial accounting.
8)

7) HELPS IN SALES OF A BUSINESS :

Accounting provides the net result of the business activities carried out in a particular year. For this, profit and loss account is prepared at the end of the accounting period which discloses the profit earned or loss suffered during the period.

INFORMS ABOUT PROFITABILTY :

Balance sheet is prepared at the end of accounting period to know the financial position of the business . It is of great significance in checking stability of the business.

9) INFORMATION ABOUT FINANCIAL POSITION :