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It is as old as money itself. In India CHANAKYA is given credit for his book ARTHASHASTRA in which he
has emphasized the existence and need of proper accounting and auditing. However Lucas Pacioli is known as father of accounting for his work published in Italy during 18th century in De Computise Scrupturise.
The modern system of accounting based on the principles of Double Entry
System owes its origin to Lucas Pacioli, who first published the principles of Double Entry System in 1494 at Venice in Italy in his book . Accounting now is regarded as an information system and has become an integral part of the Management Information System.
Need of Accounting
A person (an entrepreneur/ businessman) who is running a business, must know (1) What he owns? (2) What he owes? (3) Whether he has earned a profit or suffered a loss on account of running a business? (4) What his financial position is? -regarding his ability to meet all his commitments or becoming bankrupt. Thus, there is need of accounting if business is at small or large scale, domestic or international.
Meaning of Accounting
The main purpose of accounting is to ascertain the profit or loss incurred during a specified period, generally one year, to show the financial condition of the business on a particular date and to have control over the property of the enterprise.
Definition of Accounting
American Institute of Certified Public Accountants has defined financial accounting as the art of recording, classifying and summarizing, in a significant manner and in terms of money, transactions and events which are in part, at least, of a financial character, and interpreting the results thereof.
American Accounting Association has defined accounting as the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.
Attributes of Accounting
1. It is a language of business. As every language serves as a means
2. 3. 4. 5.
of communication, accounting also serves this function and communicates the results of business operations to various parties like proprietor, creditor, investors, govt. & other agencies. It is the art as well as science of recording and classifying business transactions and events. The transactions or events of a business must be recorded in monetary terms. It is the art of making summaries, analysis and interpretation of the business financial transactions. The result of such analysis must be communicated to the persons who are to make decisions or form judgments.
Objectives of Accounting
To Keep Systematic records- (records of assets and liabilities,
because large no. of transactions can not be stored in human memory)
Types of Accounting
Financial Accounting : II. Cost Accounting : III. Management Accounting : IV. Corporate Accounting: V. Responsibility Accounting: VI. Human Resource Accounting: VII. Social Accounting: VIII. Forensic Accounting:
I.
External users are those persons or groups who are outside the organization for whom the accounting function is being performed.
a) b)
Investors: Creditors
Advantages of Accounting
Assists the managementFacilitates to take decision Facilitates to ascertain net Helps in raising loans Helps in settlement of tax
results of operations Facilitates to replace the human memory Helps in ascertaining the value of business Acts as legal evidence
liability Facilitates to comply with legal requirements Helps in ascertaining financial position Helps in comparative study Helps to have control over assets
Limitations of Accounting
Danger of Window Dressing; When management intentionally enter wrong
and artificial figures, the income statement and balance sheet will fail to show true & fair picture of the financial position of the organization.
concern basis, hence they show only the estimated periodic results and not the real position of the organization
historical cost basis the fixed assets are shown after deducting depreciation and not on replacement value, it will not yield comparable results unless the price level changes are taken into account.
Not free from bias; In many situations the accountant has to make a choice out
of various alternatives available, hence the financial statements can not be said to be free from bias.