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ACCOUNTING
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ACCOUNTING

Accounting is the art of recording, classifying and summarizing in a

significant manner, and in terms of money, transactions and events
which are, in part at least, of financial character and interpreting the
results thereof.

- the American Institute of Certified public Accountants (AICPA)

Accounting is the process of identifying, measuring and

communicating economic information to permit informed judgments
and decisions by users of the information.

-American Accounting Association

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Financial Accounting

Accounting and financial accounting are used

interchangeably.

Accounting is a tree while financial accounting is one of

its branch.

Accounting that provides financial information to persons

outside the business entity is called financial accounting.
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Features of Accounting
Identifying: selecting transactions and events of separate nature

Measuring: expressing the business transaction in terms of money

Recording: recording in books of accounts

Classifying: grouping of transactions of same type in separate accounts

Summarizing: to bring together a number of classified account under one

single account. For example, the accounts of various customers are grouped
under as Debtors Account

Significant: accounting information is presented in a significant manner for

making decision

Interpretation: explaining the meaning and significance of the relationship

so established

Communication: communicating the results of interpretation of financial

statements to the end - users
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OBJECTIVES OF ACCOUNTING

Maintaining proper records

Knowing the profit or loss of the business

Ascertaining the source of items of revenue and expenses

Ascertainment of financial position of the business

Ascertaining the cash flows

Communicating financial information to various groups of users

Ascertaining the financial position of debtors and creditors

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OBECTIVES OF FINANCIAL
ACCOUNTING

Facilitating research in business operations

Controlling the performance of the business

Meeting legal requirements

+ ACOUNTING AS AN INFORMATION SYSTEM

Accounting is often referred to as the language of business.

Accounting is used to communicate financial and other
information to people, organizations, governments etc,
about various aspects of business and non-business
enterprises. The accounting is, therefore, also an
information system. Simply stated accounting system
converts inputs(financial transactions) into outputs
(financial statements) .
+ ACCOUNTING AS AN INFORMATION
SYSTEM

INPUT
Business
Transactions and
Events
PROCESS

Accounting
Concepts and
Conventions

Profit & Loss

OUTPUT Balance Sheet
Cash flow Statement
+ USERS OF ACCOUNTING INFORMATION

USERS

INTERNAL EXTERNAL

Potential
Creditors & investors
short- term Government Regulatory
Owners or lenders agencies
proprietors or Management Employees
partners
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BRANCHES OF ACCOUNTING

Financial Accounting

Management Accounting
Cost Accounting

Tax Accounting

Social Accounting

Human Resource Accounting

National Accounting
+ ADVANTAGES OF ACCOUNTING

Maintenance of records rather than memory

Preparation of financial statements

Comparison of results

Assistance to management

As legal evidence

Helps in taxation matters

Ascertainment of value of business

Helps in raising loans

Control over assets

Prevention of error and frauds

Communication to external users

+ LIMITATIONS OF ACCOUNTING
No recording of non- monetary transactions

No true value of the business

Use of estimates or personal judgment

Window dressing

Unrealistic accounting information

Accounting information is biased

Lack of consistency

No basis of managerial efficiency

Disclosure of only material items

Historical information only

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Mr. Raj Karan

*Assistant Professor
Department of Business
Administration
Maharaja Surajmal Institute