Financial accounting

 Meaning and scope of accounting

        Transaction means a business performance of an act,an agreement and event means a happening as a result of transaction.

      Due to importance of accounting for a business accounting is called the ‘language’ of business.

      Definition of accounting:-

            Accounting is the art of recording, classifying and summarising in a significant manner and terms of money,Transactions and events which are, in part at least ,of a financial character, and interpreting the results there of.

      According to American accounting association ‘accounting is the process of identifying measuring and communicating economic information to permit informed judgments and decisions by users of the information’.

        Thus we can conclude:-                         

1. Accounting is a process of comparising of

• Recording of transaction.

• Classifying and summarising of transaction.

• Interpreting

• Communicating

2. Accounting requires transactions to be expressed in terms of money.

3. Accounting is not confined only to recording but also related to interpreting the results.

4. Accounting helps in communicating information to various groups interested in them.

It should be noted that ' where book keeping ends accounting begins.’

     Functions and objectives of accounting:-

1. To keep systematic records.

2. To protect business properties.- it is provide protection to business properties from unjustified and unwarranted use. This is possible on account of accounting supplying the following information to the manager or the properties:-

a. The ammount of the properties funds invested in the business.

b. How much the business have to pay others.

c. How much the business have to recover from others.

d. How much the business has in the form of -1. Fixed assets

       2.cash in hand

      3.cash at bank

      4.stock of raw material, work in progress and finished goods.

3.To ascertain the operational profit and losses

4.To ascertain the financial position of the business.

5.To facilitate rational decision making.

6To communicate the results.

Book-keeping:-

     The process of analyzing ,classifying and recording transactions in accordance with preconceived plan for the purpose of providing a means by which an enterprise may be conducted in an orderly fashion and establishing a basis for recording and reporting the financial affairs of the enterprise and the results of its operation.

     Book keeping includes:-

  *Recording of transactions and events in proper books of accounts that is journal and various subscribe Diaries books.

*Classifying and posting in Ledger and totaling and balancing of accounts in Ledger.

All records before preparation of trial balance form the subject matter of bookkeeping.

Features:-

1.It is an art of ‘scientifically’ recording.

2.The recording is made of money dealings only the term money dealings is also referred to as pecuniary transaction.

3.The recordings are made in a given set of books.

      Accounting information are generally required by:-

1.Internal management:- It is provided accounting information by management accountants.

2.outsiders:-Outsiders get accounting information through financial statements the outsiders are as follows.

   a.Investors:- They Actually supply the risk capital of the business. In non corporate sector the owner requires accounting information as regards performance of the business and its financial position to decide whether to run the business or close it.

  b.Employees

  c.Suppliers and other creditors:-If the larger units collapse, the smaller units are worst affected. They may restrict the flow of credit it if the position of the enterprise is unsound.

  d.lenders

   e. Govt .and their agencies.

Double entry bookkeeping can be expressed in algebraic form as follows.

Equity= assets- liabilities

 Advantages of accounting:-

1. Assistance to management

2. Assessing the performance of the business

3. Assessing the financial status of the business.

4. Comparative study.

5. Evidence in court:-The records are based on documentary proof every entry is supported by authentic vouchers. This is why the accord accept these records as evidence.

6. Help in taxation matters.

7. Sale of business.

8. Provide information to interested Various interested parties or groups like owners, employees, government and consumers are interested in accounting information related to various aspects viz. we sales ,production, profit etc.

Limitations of Accounting:-

1.Records only monetory transaction.

2 .No effect of price level changes.

3 .lack of information.

Roll of accountant in the society -

 Maintenance of books of accounts :-Accounting informations assists the management to carry out the following activities.

 Planning, decision making ,controlling.

Replacement of money

 Comparative study

 evidence in court

 helps insolvent person

sale of business

 statement of taxation liability

 statutory audit

  internal audit

 management accounting

The fall of profit in the business

 Whether it will be cheaper to buy or manufacture an item

 The value of the business for purpose of purchase, sale ,wealth tax is state duty etc.

 Management consultancy services:-Accountants doing management consultancy services can offer the following services.

A. m.i.us (management information system that is form and system design clerical time saving best use of resources.)

B. Controlling expenses and evaluation.

C. organization and methods.

D. Working Capital Management.

E. corporate planning that is amalgamations takeover ,structions ,expansion, review of company policies etc.