Accounting

It is commonly connoted as Accounting.
The American Institute of Certified Public Accountants defines Accounting as an art of recoding, classifying and summarizing in significant manner and in terms of money, transactions and events which are of financial character, and interpreting the results thereof. Objectives of Accounting The main objective of Accounting is to provide financial information to various interested parties. This financial information is normally given via financial statements, which are prepared on the basis of Generally Accepted Accounting Principles (GAAP). There are various accounting standards developed by professional accounting bodies all over the world. In India, these are governed by The Institute of Chartered Accountants of India, (ICAI). In the US, the American Institute of Certified Public Accountants (AICPA) is responsible to lay down the standards. The Financial Accounting Standards Board (FASB) is the body that sets up the International Accounting Standards. These standards basically deal with accounting treatment of business transactions and disclosing the same in financial statements. The following objectives of accounting will explain the width of the application of this knowledge stream: (a) To ascertain the amount of profit or loss made by the business i.e. to compare the income earned versus the expenses incurred and the net result thereof. (b) To know the financial position of the business i.e. to assess what the business owns and what it owes. (c) To provide a record for compliance with statutes and laws applicable. (d) To enable the readers to assess progress made by the business over a period of time. (e) To disclose information needed by different stakeholders
Accounting principles are basic guidelines that provide standards for scientific accounting practices and procedures. They guide as to how the transactions are to be recorded and reported. They assure uniformity and understandability. Accounting concepts lay down the foundation for accounting principles. They are ideas essentially at mental level and are self-evident. These concepts ensure recording of financial facts on sound bases and logical considerations. Accounting conventions are methods or procedures that are widely accepted. When transactions are recorded or interpreted, they follow the conventions. Many times, however, the terms principles, concepts and conventions are used interchangeably. 1. Business Entity Concept: As per this concept, the business is treated as distinct (and separate) from the individuals who own or manage it. When recording business transactions, the important question is how will it affect the business entity? How they affect the persons who own it or run it or otherwise associated with it is irrelevant. Application of this concept enables recording of transactions of the business entity with its owners or managers or other stakeholders. 2. Money Measurement Concept: A business transaction will always be recoded if it can be expressed in terms of money. The advantage of this concept is that different types of transactions could be recorded as
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homogenous entries with money as common denominator. The application of this concept has a limitation. When transactions are recorded in terms of money, we only consider the absolute value of the money. Historical Cost concept: Business transactions are always recorded at the actual cost at which they are actually undertaken. The basic advantage is that it avoids an arbitrary value being attached to the transactions. Whenever an asset is bought in it is recorded at its actual cost and the same is used as the basis for all subsequent accounting purposes such as charging depreciation on the use of asset. E.g. if a production equipment is bought for Rs 1.50 crores, the asset will be shown at the same value in all future periods when disclosing the original cost. Going Concern Concept: The basic rationale of this concept is that business is assumed to exist for an indefinite period and is not established with the objective of closing it down. So unless there is good evidence to the contrary, the accountant assumes that a business entity is a going concern that it will continue to operate as usual for a longer period of time. Duel Aspect Concept: The assets represent economic resources of the business, whereas the claims of various parties on business are called obligations. The obligations could be towards owners (called as owners equity) and towards parties other than the owners (called as liabilities). When a business transaction happens, it will involve use of one or the other resource of the business to create or settle one or more obligations. Accounting Period Concept: to assess whether the business has made profit or loss, to avoid this problem, the business entity is supposed to be paused after a certain time interval. This time interval is called an accounting period. This period is usually one year, which could be a calendar year i.e. 1st January to 31st December or it could be a fiscal year in India as 1st April to 31st march. The business organizations have the freedom to choose their own accounting year. Matching Concept The net effect of these two effects will reflect either profit or loss. In order to correctly arrive at the net result, both these aspects must be recognized during the same accounting period. One cannot recognize only the revenue effect thereby inflating the profit or only the expense effect which will deflate the profit. Accrual Concept: The accrual concept is based on recognition of both cash and credit transactions. In case of a cash transaction, owners equity is instantly affected as cash either is received or paid. In a credit transaction, however, a mere obligation towards or by the business is created.
Conventions: 1. Conservatism: The concept underlines the caution of under-stating than overstating the net income of an entity for a period and the net assets as on a particular date. This is because business is done in situations of uncertainty. For years, this concept was meant to anticipate no profits but recognize all losses. This can be stated as
(a) Delay in recognizing income unless one is reasonably sure (b) Immediately recognize expenses when reasonably sure 2. Realisation: While the conservatism concept tells whether or not revenue should be recognized, the concept of realisation talks about what revenue should be recognized. It says amount should be recognized only to the tune of which it is certainly realizable. Thus mere getting an order from the customer wont make it eligible to recognize as revenue. The reasonable certainty of realizing the money will come only when the goods ordered are actually supplied to the customer and he is billed. 3. Consistency: This concept advocates that once an organization decides to adopt a particular method of revenue or expense recognition in line with the other concepts, the same should be consistently applied year after year, unless there is a valid reason for change in the method. Lack of consistency would result in the financial information becoming non-comparable between the different accounting periods. 4. Materiality: This is more of a convention than a concept. It proposes that while accounting for various transactions, only those which may have material effect on profitability or financial status of the business should have special consideration for reporting. This does not mean that the accountant should exclude some transactions from recording. REDEMPTION OF DEBENTURES Meaning Redemption of debentures is the process of discharging the liability on account of debentures in accordance with the terms of redemption stated in the debenture trust deed. Discharge of debenture liability is usually by paying cash to the debenture holders. But this can take other forms such as conversion or rollover.
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It is commonly connoted as Accounting.

Differences between Shares and Debentures

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