Skip to main content

Accounting

Accounting includes process of identifying, recording, classifying and also summerising the trasactions, and analyzing, interpreting the results from summerised transactions. Accounting includes book-keeping. recording, classifying are done in book-keeping but summersing, analyzing, interpreting are done in accounting. Accounting includes book-keeping and preparation of final accounts (summersing), and interpreting the results in final accounts by the use of fund flow statement, ratio analysis, etc (analyzing, interpreting).
           Definition
                According to American Institute of Certified Public Accountants Committee, ”Accounting is an art of recording, classifying, summersing in 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.”
          Explanation
              The art of recording, classifying, summersing in significant manner is accounting. In journals and subsidiary books, Recording is done in accounting by following golden rules. In ledger, classifying is done by grouping the same nature of accounts under one head. In Profit or Loss A/c, Balance Sheet, Summersing of classified transactions are done.
              Business transactions and events which are in financial character are recorded in terms of money. As per money measurement concept, financial transactions and events are to be recorded in books of account in money values.
              The results of business transactions and event can be traced by preparing the profit or loss accout, balance sheet. Income statements reveal the profit or loss of business. Balance sheet reveals financial position. Ratio Analysis, Fund Flow Statement, etc are used to interpret the results revealed by final accounts.
Difference between Accounting and book-keeping
     Book-keeping is the sub division of accounting. Some process is added to book-keeping to complete the accounting process.  Some differences are existed between them. They are below mentioned.
      1) Nature
               Book-keeping is the routine and clerical nature.
               Accounting is analytical and executive nature.
     2) Scope
             Book-keeping is recording and classifying the business transactions only.
             Accounting is recording, classifying and summerising, analyzing and interpreting the business           
             transactions.
     3) Objective
              Book-keeping is to maintain the business records in systematic manner only.
              Accounting is to ascertain the results of summerised business transactions and financial position.
     4) Responsibility
               Book-keeper, clerk, junior level staff of accounting is responsible for book-keeping process.
               Senior Accountant, Accountant, etc are responsible for accounting process.
     5) Financial Statements
              In book-keeping, financial statements are not prepared to ascertain the results and financial   
              position but just recording is done.
              In Accounting, Financial statements are prepared to know the results and financial position of            
              Business (final accounts are prepared).
     6) Management Decision Making
             In book-keeping, Management decision making is not done because final results of business is          
             not ascertained.
            In Accounting, Some management decision making tools like ration analysis are used on results
           obtained from financial statement for management decision making.
     7) Sub Fields
             Book-keeping is not classified in sub field futher.
             Accounting is classified as financial accounting, management accounting, cost accounting,Social

            responsible accounting etc.,

Comments

Post a Comment

Popular posts from this blog

Concepts and principles of accoutancy

PRINCIPLES OF ACCOUNTING Principles of Accountancy      The principles which are used in accountancy can be divided into two elements. The accounting concepts and conventions are treated as the basic two elements of principles of accountancy. Nearly eight major concepts are adopted in accountancy. Three major conventions are used in accountancy.      While recording the business transactions in books of accounts, the concepts are to be considered at appropriate situation, Concepts are first and foremost in accountancy. In English, alphabets are important. Accounting concepts are foremost in accountancy. Business Entry Concept      Business is separated from its owner. Owner is treated as a principle creditor of the business. Business owes to the owner for the amount of capital invested in business by him. Even though business is owned by the proprietor, it is a separate entity. All accounting processes are done in the point of view of ...
Post a Comment
Read more

Basis of Accounting

There are two basis of accounting. One is accrued basis and another one is cash basis. They are otherwise called merchandise basis and cash basis of accounting. Accrual Basis      Revenue, expenses, and transactions are recorded in books of accounts, when they arise or accrue under accrual basis. It follows accrual concept to record transactions in books of accounts. The payment or receipt of cash may have done or not but revenue, expenses, and transactions are recorded in the books of accounts, when it becomes due. “Time never waits for human” as like the sentence revenue, expenses, transactions never wait for its cash consideration. When they become due, it is recorded in the books of accounts. Outstanding expenses, prepaid expenses, accrued income, income received in advance accounts are maintained in accrual basis of accounting only.      Under Companies Act, 1956, all companies must prepare its accounts under accrual basis of accounti...
Post a Comment
Read more

Users of Accountancy

Users of Information of Accountancy      Accountancy is a language of a business which explains the results and financial position of business. There are many users to know the status of businesses. Accountancy is a useful communicative medium to the users to know the results and financial position of a business. Users are classified into internal users and external users. Accountancy provides necessary information that is required by the users Internal Users      Some individuals and groups are inside organization. They are called as internal users. They are 1) owners 2) Management 3) Employees. Owner       The proprietor of business requires the information of accountancy to know the profitability status of business. Accountancy provides the required information in forms of financial statements, financial reports, and statement of accounts to the owners. Management      Management requires the information of accounta...
Post a Comment
Read more