A guide to the accounting discipline Essay

Role of Accounting

Accounting is non an terminal in itself ; it is a agency to an terminal. It performs the service activity by supplying quantitative fiscal information that helps the users in doing better concern determinations. Accounting besides describes and analyses the mass of informations of an endeavor through measuring, categorization, and summarisation, and reduces that data into studies and statements, which show the fiscal status and consequences of operations of that endeavor. Accounting as an information system collects procedures and communicates information about an endeavor to a broad assortment of interested parties.

Differences between Accounting and Book-Keeping

Book maintaining normally involves merely the recording of concern minutess ( minutess ) and is hence, merely one portion of the accounting procedure. Accounting on the other manus, involves the full accounting procedure, i.e. designation, measuring, recording, and communicating. Now-a-days, much of the book maintaining map is performed by the computing machine and other machines.

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Aims of Accounting

The basic aim of accounting is to supply information to the interested users to enable them to do concern determinations. The necessary information, peculiarly in the instance of external users, is provided in the basic fiscal statements: Net income and loss statement and Balance sheet.

Besides the above beginnings of information, the internal users, officers and staff of the endeavor, can obtain extra information from the records of concern. Thus the primary aims of accounting can be stated as:

Care of Records of Business minutess.

Calculation of Net income or Loss

Word picture of Financial Position.

Supply Information to the Users

Care of Records of Business

First record, so wage ; if there is an mistake, trace it from the records. Human memory is short. Even the most superb executive or director can non accurately retrieve what he might hold observed sing the day-to-day operations. He need non strive his memory unnecessarily, if proper and complete records of all concern minutess are kept on a regular basis. More-over, records can be used by different functionaries for different decision-making intents.

Calculation of Net income or Loss

Earning net income is the chief intent for which a concern is carried on. This information is available from the net income and loss statement. Net income is calculated by subtracting disbursals from the associated grosss. Net income is a step of the public presentation of the endeavor.

Word picture of Financial Position

A balance sheet depicts the fiscal place of an endeavor. It is a statement of assets and liabilities. It shows the resources ( assets ) owned by an endeavor and depicts the claims ( liabilities ) against the resources. The balance of assets minus the external liabilities shows the capital ( proprietor ‘s equity ) .

Supply Information to the Users

Generation of information is non an terminal in itself. It is a agency to ease the airing of information among different user groups. Therefore, communicating of information is the indispensable map of accounting. Accounting information is communicated in the signifier of studies, statements, graphs and charts to the internal and external users who need it in different determination state of affairss.

Internal users: The officers and staff of an endeavor demand utile and timely information for doing different types of concern determinations. A major aim of accounting is to supply direction with relevant and dependable information. For illustration, some of the inquiries a director might inquire are:

How much net income did the company make during the last accounting period?

Is the return to portion holders adequate?

How can it be improved?

Does the company have adequate hard currency on custodies to pay debts when they fall due?

What are the jutting hard currency demands in the following one-fourth?

Which are the most profitable merchandises?

What is the cost of fabricating each merchandise?

Which costs exceed the budget?

How much money should be borrowed to spread out the concern?

External users: The outside users have limited authorization, ability or resources to obtain information. Unlike internal users, they have to trust on fiscal statements ( Balance sheet, Net income and Loss statement ) as their chief beginning of information about an endeavor ‘s economic activity. Chiefly the external users are interested in the followers:

The sum and the clip when they are likely to have hard currency in the hereafter from dividend, involvement etc.

Reliable information about economic resources ( assets ) and duties ( liabilities ) of a concern endeavor in order to measure its strengths and failings, and its fiscal place in general.

Information about the public presentation and the gaining power of the concern endeavor.

Any other information relevant to the users demands.

Restrictions of Accounting

Accounting records relate to the past minutess, which provide reasonably good history of the economic activity of the concern endeavor. However, from decision-making point of view we need information, which relates non merely to past but besides about present and future. Fiscal accounting makes proviso for fiscal information but it does non supply non-financial information such as behavioural and socio-economic. If the aim of accounting studies is to act upon the behaviour through decision-making so it must supply the information refering the behaviour and result of human activity to ease public presentation rating. Therefore, the accounting information does non to the full run into different types of information-requirements of varied determination devising state of affairss. Accounting provides stewardship information and non decisional information.

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