Accounting & Financial Analysis Definition, Nature, and scope of accounting By Anand Prakash

Definition
Accounting is the art of recording, classifying and summarizing in a significant manner, and in terms of money transaction and event which are, in part at least, of a financial character, and interpreting the result thereof.
{Given by AICPA,in1941}

Definition
Accounting is a process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of information.
{Given by AAA, in 1966}

Definition
Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, and about economic activities, that is intended to be useful in making economic decision.
{Given by AICPA, IN 1970}

Business activity and transaction

Data
Recording of Data

Accounting
Processing of Data

Communication

Decision making

Function of Accounting

According to Moonitz, the functions of accounting are: To manage the resources held by specific entities; To reflect the claims against the interest in those entities; To measure the changes in those resources, claims and interested; To assign the changes to specifiable period of time; To express the above in term of money as a common denominator.

Characteristic of Accounting

Accounting involves recording of economic activities which accompany the complexity and uncertainty of business. Therefore, while preparing timely accounting statements, estimates and professional judgment must be made. Accounting statements are prepared on:Cash basis of accounting Accrual basis of accounting Accounting is historical in nature.

Objectives of Accounting

Changes in financial position resulting from the incomeproducing efforts of an enterprise; Earning of an enterprise, presented in a manner that emphasizes sources and trend of earning; Economic resources and obligation of an enterprise; Changes in net financial resources which result from the financial and investment of an enterprise; Any additional information, in the form of disclosures, which is relevant to statement users in assessing a particular enterprises prospect.

Advantages of Accounting

It provides information useful for making economic decisions. It serves primarily those users who have limited authority, ability or resources to obtain information and who rely on financial statements as their principal sources of information about an enterprises economic activity.

Advantages of Accounting

cont It provide information useful to inventors and creditors for predicting, comparing and evaluating potential cash flows in term of amount, timing and related uncertainty. It supplies information useful in judging the managers ability to utilize enterprise resources effectively in achieving primary enterprise goals. It provides factual and interpretative information about transactions and other events which useful for providing, comparing and evaluating the enterprises earning power.

Limitation of Accounting

Accounting is historic in nature, it dose not reflect the current financial position or worth of a business. The profit and loss account tends to match current revenue with historical cost rather than current cost. Accounting statements do not do not show the impact of inflation. Accounting principle are not static or unchangingalternative accounting procedures are often equally acceptable. Therefore, accounting statement do not always present comparable data.

Scope of Accounting
Financial Accounting Cost Accounting Management Accounting

Accounting

Financial

Managerial

External reporting

Interested party

Income statement Balance sheet Cash flow statement

Shareholder Investor Creditors

Govt. authority
Managers Employees Stock Exchange

Thanks .