Accounting of language of business entity
Art of language of business entity
Owns stake
holder
Owns share
holder
Earn any
other
Financial position credit
Introduction: - Accounting has been termed as language of
the business. The basic function of accounting is to serve as the basic means
of communication.
It communicates the result of business operations the
results of business operations to various partners are know some stake in the
business. The parties are stake holders are proprietor, creditors, investors,
etc Government and other agencies.
Proprietor (Owner):-
Creditors:- who take money from other and give it to the
firm.
Investor:- Gives + stake holder debenture holder
The main purpose of accounting is to creation profit or loss
a specified period to show financial condition of the business on particular
day and to how control over firms properly.
Such as accounting records are required
maintain the measures the income of the business and communicate the
information. So that it may be used of managers owners and other interested
parties.
·
Definition:-
Accounting is a discipline which records “classified” summaries and
interprets financial information about the activities of a concerned so that
important decisions can be made about the concern.
Ø
Specified period :-
·
Calendar year :- 1st jan to 31st
dec
·
Financial year :- 1st april – 31st
march
·
Definition:-
·
The American institute of certified public
accounts (A.I.C.P.A) has defined the financial accounting as the art of
regarding classifying and summarizing in as significant manner and in term of
money transaction and events which impart of a financial characterAnd
interpreting the result there off:-
Types of accounting:-
Ø
Financial accounting
Ø
Management accounting
Ø
Tax accounting
American accounting association
defines accounting as the process of identifying, measuring and communicating
economic information to permit inform and judgment & decision of the users
of the information.
Transactions
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Monitory transaction
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Non-monitory transaction
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Attributes of accounting:-
Ø
Recording of transaction
Ø
Classification
Ø
Summarizing
Ø
Interpretating
Recording:-
It
is concerned with records of financial transaction in an ordering manner soon
after their accuracy in the proper books and accounts.
Classifying:-
It is concerned with systematic
analyses of the recorded data so as to accumulate the transaction of similar
type at place. This function is performed by maintaining the ledger in which
different accounts are open to which related transactions are passed.
Summarizing:- it is concerned with the preparation and
presentation of the classified data in a manner useful to the user. This
function involves the preparation of financial statement. Such as income
statement, balance sheet, statement of fund flow, statement of change of
financial position, statement of cash flow.
Interpretating:-
The account has to concentrate on
the mainly interpretation aspects aspectancy the accounting. The accountant
should interpreted the statement in a manner useful to action.
The accountant should explain not
only what has happened but also
Why it happened?
What is likely to happen under
specified condition?
Nature of accounting:-
·
Accounting is a service activity.
·
Accounting as a profession.
·
Accounting as a social force.
·
Accounting as a language.
·
Accounting as a science or art.
·
Accounting as a information system.
Ø
Accounting is a service activity:-
Accounting is a science activity. Its
function is to provide quantitative information primarly financial in nature
about the economic entities that is intended to be useful in making in in
economic decision. In making reason an choice among alternative courses. It
means that accounting collects financial information from the various uses for
taking decision and taking business issues. Accounting in itself cannot create
well it produces information which is useful to others.
Accounting as a profession:-
Accounting is a systematic body of
knowledge developed with the development of development of trade and business
over the past century. The accounting education is being imparted to the
examines by national and international recognized body like the institute of
and charted account of India, American
institute of certified public accountant etc. the candidate must past a
vagarious in examination in accounting theory. Accounting practices auditing
and business laws. The member of professional body is normally have their own
association on their organization where they are required to do in real as a
associate member of an institute of charted accounts and follow of the
institute of charted accounts. In a way accounting as a profession has attend
the comparable with that of lawyer, medicine and architecture.
Ø
Accounting as a social force:-
Under the changing business environment the
discipline of accounting and the Accountant both watches and protect the
interest and other people who directly or indirectly linked it operation of
modern business. The society is composed of people such as share holder,
customer, creditor, and investor. The accounting information is to be used to
solve the problem of public at large such as determination and controlling of
prices therefore save guaring of public interest can better be facilitate with
a help of proper aggregate and reliable account information and as a result of
each a society at large is benefited.
Ø
Accounting
as a language:-
Accounting is rightly referred the language
of business. It is one means of reporting and communicating information about a
business as one has to learn a new language to covers and communicate so also
accounting is to be learned and practiced to communicate business events.
A Languages and accounting have common
features as regards rule and symbols. Both are based are propounded on
fundamental rules and symbol in language there are known as grammartial rule an
in accounting.
These are turned as accounting
rules. The expression exhibition & presentation of accounting data such as
numerals onwards & debit and credit are excepted as symbols which are
unique to the discipline of account.
Ø
Accounting as a science or Art:-
Science is a systematic body of
knowledge it establish a relations of cause and effect in the various related
promotional principles (causes & effect relationship).
e.g = Double entry system which
explains that every transaction has to follow exports that is debit &
credit it also lays down that rules of formalities so we can say that
accounting is an science.
Accounting has a perfect knowledge
interest and experience to do work efficiently art also teaches
Us how to do a work in the best
possible way while making the best use the available resource.
Accounting is an art it also
requires knowledge interest and experience to maintain the books of account in
a systematic manner. It can be concluded about discussion an accounting is an
art at well as science.
Ø
Accounting
as a information system:-
Accounting discipline is the
most useful in the acquisition of all business knowledge accounting information
serves both profit organization. The accounting system of a profit seeking
organization is an information system design to provide relevant financial
information on the resources of a business and the effect of there in
information is relevant can use it to evaluate the financial consequence of
various alterative. Accounting generally does not generate the basic
information (row financial data) rather the raw financial data result for the
business as or information system accounts link an information source or
transmitter (generally the accountant) a channel of communication and a set of
receive world (external users).
Objectives of accounting:-
The following are the main
objective of account.
Ø
To keep systematic records:-
Accounting is done to keep a systematic
record of financial transaction in absence of account there would have been a
terrific burden on human memory which
would have been impossible to bear.
Ø
To protect business properties:-
Accounting provides protection to
business properties form unjustified and a warranted used. This is possible an
accounting supply the information to be manager or the proprietor.
Information:-
The amount of proprietor funds
invested in the business.
How much the business has to
recovers to other.
How much the business have to be
pay to others.
How much the business has in the form
of
Ø
Fixed assets
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Cash in hand
Ø
Cash at bank
Ø
Stock of row material
Ø
Work in
progress
Ø
Finished goods
·
Stock :- finished goods, raw material, work in
progress
·
Cash :- Transitive, speculative motive
·
To ascertain the operational profit or loss:-
Ø
Account help in ascertaining the net profit earn
or loss suffered on account of currying this business this is done by keeping
as proper record of revenue are expense of a particular period. The profit and
loss account is prepaired at the at the end of the revenue for the period is
more than the
Incurred: - that revenue that is
said to be profit in case the expenditure exceeds the revenue there is said to
be a loss.
Profit and loss is help the management investor credit etc in knowing
the other the business has remuneration or not in case it has not proved to be
profitable the cause of such state of
affairs will be investigated and necessary remedial steps will be taken.
To acertain the financial position
of the business:-
The P & L account keeps the
amount of P/L made by the business during a particular period. The business man
must know about his financial position.
Ø
Where he stands?
Ø
What he owes?
Ø
What he owns?
This objective is short by the balance sheet or position
statement the b/s is the statement of assets & liability of the business of
a particular date if revenue as baro-meter for ascertained the financial welth
of the business.
Ø
To facilitate rational decision- making:-
Ø
Information system:- account function is an
information system for collecting and communication economic information about
the business enterprise this function help the management taking appropriate
decisions.
Investor/Outs
User of accounting information
|
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External user
Internal user
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Investor/Outs (with in the
management of the company)
|
Ø
External users:-
Ø
Invertors: - Those who are interest in many an
organization.
Are interested in knowing the
financial health of the organization of know how save the investment already
made is an how save their purposed investment will be.
Creditors
Ø
Members of non- profit organization.
Ø
Government
Ø
Consumers/customers
Ø
Research associates
Internal user:-
Internal users of accounting information.
Ø
Owners
Ø
Management
Ø
Employee
Branches of accounting:-
Ø
Financial accounting
Ø
Cost accounting
Ø
Management accounting
Function of accounting:-
Ø
Keeping systematic records:-
The primary function of accounting is to
keep a systematic record of business transaction knowing financial character
journal, ledger, trial balance and trial accounts form part of this function.
Ø
Communicating the results and financial
position:-
The second function of accounting is to
communicate the result obtain form P/L account and financial position as shown
by balance- sheet to the interested parties that includes the owners, investor,
creditor, employee, government, department and resources.
Ø
Protecting properties of the business:-
Accounting protects properties of
the business form unjustified and unwarranted use protection of properties is
possible because a/c supplies important information to be manager and
propriters.
Information:- the amount of properiters funds invested in
the business.
The amount which the business as
to pay to others.
The amount which the business has
to recover from others.
The amount which the business has
invested different assets falling in the grows of fixed assets and current
assets.
Compliance of legal requirements:-
Auditing is compulsory for
company’s under the provision of company act . auditing is not possible without
accounting. Accounting is to be done such a standard level as to comply with
the legal requirements. Many documents of the company are to be filling with
certain government departments under various laws and a/c provides information.
In this documents.
Ø
Assistance to management :-
Account help the management by providing
necessary information this information assets the management in decision making
and policy making for future.
Ø
Importance objective and need of accounting:-
The main object of accounting (financial
a/c) is to find out financial result P/L and the financial position ( assets
and liabilities) of the business. The important of accounting a path from this
main object this may be sturdy under the following points.
1.
Business forecasting:- every business tries to
forecast its future activities on the basic of the past experience and present
practices.
for example:- a business is like
to know the quantity and quality of good to be manufacture in future account
provide this facility to be business.
Correct decision making:-
Every business louse has to take
many economic and financial decisions.
For example:- determination of
price on the basis of cost, imports, increase or decrease on investment
distribution of evident, bonus etc. all such decisions should be taken with at
most care. Any wrong decision taken may dare in many difficulties and problem
and appropriate and insistent accounting system helps in taking various
decisions in the business.
Correct taxation:-
A business house has to pay many
taxes such as income tax, sales tax, excise duty, customs, etc. The quantum of all taxes depends on the
results shown by the financial accounts.
The proper account helps in
determining correct amount of taxes.
Custom:- export, import
Excise duty:- production time (
Manufactured)
Ø
Getting Capital in loans:-
Company’s capital & loan by
issuing share and debenture to the public the investor won to be insure of a
reassemble return by way of devident or intrest before investing money in the
company.
They also wish that other
investment should remain save and secured in the company similarly a new
partner would like to asset the profit earning capacity of the firm before
intring into partnership.
A firm sole trader makes loans
from bank etc. any person or institution giving money to a business house can
easily beside by seaing the account of
the business.
Ø
Control on employees:-
If a scientific logical and
discipline account is followed the errors and focus can be easily effected and
proper control Can be heal on employees on the business.
Ø
Helpful in solving business disbutes:-
The accounts maintain as per rules
or documentary prove in counts of low on the basic of accounts a business louse
can sue the other and can defer itself in case of any disbute b/w the two.
A concern may also proceed for
getting in solve meant in case its liabilities exceeds its assets. Account
helps the concern in all aspects and in situation of infrequency.
Accounting procedure or scope of
accounting:-
The main object of accounting is
to classify the financial picture of the business this picture has two parts.
Ø
The part which concers the business result P/L.
Ø
The part which explains the assets and liability
of the business.
Ø
All the accounting treatment in connection with
these two parts of the financial this feature termed as accounting procedure.
Ø
Accounting proceduring includes according in
journal posting in laser prepration of trial balance, P/L accounts and balance
sheet and there interpretation.
The following points consititute the
procedures or scope of accounting.
Satiation of accounting system:-
first of all one accounting method is developed for the business the Accountant
the concern sturdy the nature or possible transaction of the business &
selects the form and kind of records and a/c necessary form that business than
he/she decides the a/c system to be follow. In practice selection is to remain
now double entry system single entry system and Indian a/c system.
Ø
Accounting of business transaction:-
After installing the a/c system
the business transaction are recorded in different book. Every business concern
keeps a number of books & a/c
according to its needs and convince generally double entry system used for
recording the transaction.
Ø
Preparation of annual accounts:-
Accountant of the business
prepaired annual a/c year. Annual ac are also termed as find a/c and include
the preparation of P/L a/c form the accounting period & a/l as the day date
of accounting period.
Conclusion :-
The combined effect of all the
above 3 point it that network of an a/c system a set of books and recognize
document come into be and every financial transaction is recorded there
whenever it takes place in the life of the business.
This
kind of a/c is called financial a/c
Ø
Limitations of accounting:-
Accounting records only such
transactions which can be expressed in terms of money it has no place for
recording of non- monetary or non- financial transaction this matter also have
a significant role in affectiving the sound of the business.
Examples:-
Efficiency of the
management, political situation government policy, market competition consumer
preferences etc. you affect the financial results & financial position of
the business but there are not recorded in account.
Ø
Based on some estimates:-
The business results are turned by
account on some real & some assume estimates.
For example:- the valuation of
stock determination of depreciation, maintained of provision and reserves are
done in different concern and different manner of their own choice the results
and provision will change in the practices.
Ø
No consideration of basic level changes:-
Account adopts the cost concept
and hence does not consider the changes in the price level from time to time
these is many serious limitation of account.
Showing imaginers assets:-
Certain items find place and side
of the balance-sheet while they are not real.
For example:- goodwill, patients,
preliminary expenses, discount or shares and debentures.
Copy right: - Film. Etc (70-90)
Patient:- 15-20 year
Trade mark :- symbol, signs, Logo,
Tagline
T.M – goods
S.M – services
> may be manipulated:-
The a/c may be manipulated to
satisfy the wishes of the management an accountant may show the business
results low for high as may require by age by manipulating the a/c data.
Example:- omitting creation a/c by
increasing or decreasing the amount of certain items by underestimating or
overestimating value of the assets.
Bound under certain concepts:-
Certain concept and convention are
followed in accounting some times these prove through unnecessary.
For examples:- the concept of a
going concern resumes that a business mill will be carried on for an indefinite
period with this concept in view we show different assets in b/l at there booked value. Cost – deprecation and
not yet market-price, some times an asset may be value lives in the market but
it is continued with shown in the books of account.
Ø
The concert of concervative:- suggest that
profit should not be anticipated but all possible losses must be provided for.
For example :- stocked must be
valued at cost or market price whichever is lives an accounting under this concept sometime give
in true results.
Ø
Concept of materiality:- suggest that a/c should
disclose all the material information and immaterial or unimportant information
may be avoided this concept sometimes creates confusion in identifying whether
information is material or immaterial.
Classification of accounting
principles:-
Ø
Accounting principles are the giving rules of
action or conduct for the accountant while recording the business transaction.
Concept –
1.
Seprate entity
2.
Going concern
3.
Dual concern
4.
Dual aspect
5.
Money measurement
6.
Cost
7.
Accounting
8.
Realization
9.
Matching revenue & cost
10.
Evidence
11.
Seprate entity:-
12.
This concept states that form accounting point
of view business is always treated is seprate entity a part form its owner,
creditor, and others.
13.
This concept is applicable to all form of
business – sole tradership, partnership & company.
14.
The properitor of a enterprises is always
consider to be these things and separate form the business he control. He
becomes creditor for his business entity unit for whatever he guides its
capital and he is created as debtor for whatever he always out of business.
15.
2. Going concern:-
Thi is also known as concept of continuity
account to this concepts we can assume that the business will be carry on for a
long period.
16.
The company is sppose to be an artificial person
having perpetual concession.
17.
Dual aspect concept:-
This is also known as concept of
accounting equivalences.
This concept suggest that all the
business transaction must be recorded in such a manner that each transaction
effect simultaneously.
For Ex:- goods purchase for cash
Purchase a/c.. Dr
To Cash …
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