2Every Individual performs some kind of economic activity. All the economic activities are run for an individual benefit and may create social benefit, an i.e. benefit for the public at large.
For eg, A Salaried person gets salary and spends to buy clothing, for children’s education, construction of the house, etc.
Such economic activities are performed through “transactions and events”.
Transaction = a business, performance of an act, an agreement.
Event = a happening, a result, an outcome
- An individual invests Rs. 200,000 for running a stationery business. On 1st April, he purchases goods for Rs. 115,000 and sells for Rs. 147,000 during this month. He pays a shop to rent for the month of Rs. 5,000 and finds that he has goods worth Rs. 15,000 in hand. The individual performs an economic
In this e.g., Earning of Rs. 42,000 surplus is an event, also having stock in hand is another event, Purchase and Sale of goods, investment of money and payment of rent are transactions.
Stock in Hand- Rs. 15,000 &
Surplus = 147,000 + 15,000 – 115,000 – 5,000 = Rs. 42,000
The Committee on Terminology set up by the American Institute of Certified Public Accountants formulated the following definition of accounting in 1961:
“Accounting is the art of recording, classifying, and summarising 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 result thereof.”
Definitions:
Accounting:
Accounting is the process of
- Identifying
- Measuring
-
Communicating
Accounting information to permit informed judgements and decisions by the users of accounting.
Accountancy: Accountancy refers to SYSTEMATIC KNOWLEDGE OF ACCOUNTING. It explains why to do and how to do various aspects of accounting.
Book-Keeping: Cycle: Book-Keeping is a PART OF ACCOUNTING and is concerned with Maintenance Of Books Of Accounts.
AccoCycle: Begins with the recording of transactions and Ends with preparation of final accounts
Users of Accounting:
Internal users: management and employees
External users: creditors, customers, govt, public etc
Objectives And Functions Of Accounting
Objectives:
- To maintain SYSTEMATIC ACCOUNTING RECORDS
- To ascertain FINANCIAL POSITION
- To ascertain the FINANCIAL PERFORMANCE
- To COMMUNICATE information to users
Functions:
- Measurement
- Forecasting
- Decision Making
- Comparison and Evaluation
- Control
- Government Regulation and Taxation
Advantages & Limitations Of Accounting:
Advantages:
- Facilitates the maintenance of systematic records.
- Facilitates the ascertainment of financial performance.
- Facilitates the ascertainment of financial position.
- Facilitates the communication of information to users.
- Facilitates the compliance with legal requirements.
- Facilitates the Control Over Assets.
- Assists The Management.
Functions:
- Ignores qualitative (Non-Monetary terms)
- Not free from bias.
- Ignores the price level
- The danger of window dressing.
