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    Accounts and Its Functions

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    thensuresh
    Accounting records, classifies, and summarizes business transactions. It aims to provide information to internal and external users for decision making. Accounting uses the cash and accrual basis, with mercantile being most common. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting data for financial analysis, planning, and oversight. Accountants prepare financial reports and play roles in auditing, management, taxation, costing, and corporate changes.

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    Accounts and Its Functions

    Uploaded by

    thensuresh
    58 views15 pages
    Accounting records, classifies, and summarizes business transactions. It aims to provide information to internal and external users for decision making. Accounting uses the cash and accrual basis, with mercantile being most common. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting data for financial analysis, planning, and oversight. Accountants prepare financial reports and play roles in auditing, management, taxation, costing, and corporate changes.

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    Accounting records, classifies, and summarizes business transactions. It aims to provide information to internal and external users for decision making. Accounting uses the cash and accrual basis, with mercantile being most common. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting data for financial analysis, planning, and oversight. Accountants prepare financial reports and play roles in auditing, management, taxation, costing, and corporate changes.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    58 views15 pages

    Accounts and Its Functions

    Uploaded by

    thensuresh
    Accounting records, classifies, and summarizes business transactions. It aims to provide information to internal and external users for decision making. Accounting uses the cash and accrual basis, with mercantile being most common. Stakeholders like shareholders, creditors, management, employees, and the government rely on accounting data for financial analysis, planning, and oversight. Accountants prepare financial reports and play roles in auditing, management, taxation, costing, and corporate changes.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 15

    Accounts and its

    Functions
    Introduction-Definition
    Accounting is often called the language of business.Its
    purpose is to communicate or report the results of
    business operations and its various aspects.
    It is the process of identifying, measuring and
    communicating economic information to permit
    informed judgments and decisions by users of the
    information.
    Objectives Of Accounting
    The following are the objectives of accounting:
    a.To record the business transactions in a systematic
    manner.
    b.To determine the gross profit and net profit earnedby
    a firm during a specific period.
    c.To know the financial position of a firm at the closeof
    the financial year by way of preparing thebalance sheet
    Objectives Of Accounting
    The following are the objectives of accounting:
    d.To facilitate managementcontrol.
    e. To assess the taxable income and the sales taxliability.
    f.To provide requisite information to different parties,
    i.e., owners, creditors, employees, management,
    Government, investors, financial institutions, banks etc
    Limitations Of Accounting
    Accounting suffers from the following limitations:
    i.Accounting information is expressed in terms of
    money. Non monetary events or transactions, however
    important, are completely omitted.
    ii.Fixed assets are recorded in the accounting records at
    the original cost, that is, the actual amount spent on
    them plus all incidental charges. In this way the effectof
    inflation (or deflation) is not taken into consideration.
    The direct result of this practice is that balance sheet
    does not represent the true financial position of the
    business.
    iii.Accounting information is sometimes based on
    estimates; estimates are often inaccurate.
    Limitations Of Accounting
    iv.Accounting information cannot be used as the only
    test of managerial performance on the basis of more
    profits. Profit for a period of one year can readily be
    manipulated by omitting such costs as advertisement,
    research and development, depreciation and so on.
    v.Accounting information is not neutral or unbiased.
    Accountants calculate income as excess of revenues over
    expenses. But they consider only selected revenues and
    expenses. They do not, for example, include, cost of such
    items as water or air pollution, employee’s injuries,etc.
    vi.Accounting like any other discipline has to follow
    certain principles, which in certain cases are
    contradictory. For example current assets.
    Functions Of Accounting
    The following are the functions of accounting:
    a. Recording: Accounting records business
    transactions in terms of money. It is essentially
    concerned with ensuring that all business
    transactions of financial nature are properly
    recorded. Recording is done in journal, which is
    further subdivided into subsidiary books from the
    point of view of convenience.
    b. Classifying: Accounting also facilitates classification
    of all business transactions recorded in journal. Items
    of similar nature are classified under appropriate
    heads. The work of classification is done in a book
    called the ledger
    Functions Of Accounting
    The following are the functions of accounting:
    c.Summarizing: Accounting summarizes the classified
    information. It is done in a manner, which is useful to the
    internal and external users. Internal users interested in
    these informations are the persons who manage the
    business. External users of information are the investors,
    creditors, tax authorities, labour unions, trade
    associations, shareholders, etc.
    d.Interpreting: It implies analyzing and interpreting the
    financial data embodied in final accounts. Interpretation
    of the data helps the management, outsiders and
    shareholders in decision making.
    Systems Of Accounting
    The following are the basic systems of recording
    business transactions:
    i.Cash Basis Accounting: According to this system, only
    actual cash receipts and payments are recorded in the
    books. The credit transactions are not recorded at all, till
    actual cash is received or paid. Thus, if purchases are
    made in the year 2002 on credit and payment for
    purchases is made in the year 2003, such purchases shall
    be considered to be an expense of the year 2003 and
    shall not be recorded in the year 2002. This system of
    accounting is mostly followed by non-trading
    organizations, professionals like lawyers, doctors,
    chartered accountants, etc.
    Systems Of Accounting
    ii.Mercantile or Accrual System: According to this
    system, all the business transactions pertaining to the
    specific period, whether of cash or credit nature, are
    recorded in the books. This system of accounting is
    based on accrual concept, which states that revenue is
    recognized when it is earned and expense is recognized
    when obligation of payment arises. Actual movement of
    cash is irrelevant. Mercantile system of accounting is
    widely followed by the industrial and commercial
    undertakings because it takes into account the effectsof
    all transactions already entered into.
    Systems Of Accounting
    iii.Mixed System: Mixed system is modified form ofpure-
    cash-basis accounting. Because of the fact that pure cash
    basis would result in balance sheet and income
    statement with limited use, it necessitates the need of
    mixed accounting in which some items (especially sales
    and period costs are treated on cash basis and some
    items (especially product costs and long-lived assets) are
    treated on accrual basis.
    People Interested
    Shareholders: Since shareholders have invested in the
    company so they are interested in the financial
    statements.
    Creditors: Creditors may be short-term or long-term. The
    main concern of the creditors is focused on the credit
    worthiness of the firm and its ability to meet its financial
    obligations. They are therefore concerned with the
    liquidity of the firm, its profitability and financial
    soundness.
    Management: Management requires accounting
    information for planning, organizing, and control
    purposes. The emphasis on efficient & effective
    management of organizations has considerably extended
    the demand for accountinginformation.
    People Interested
    Employees: The importance of harmonious industrial
    relations between management & employees cannotbe
    over-emphasized. The employees have a stake in the
    outcomes of several managerial decisions. Greater
    emphasis on industrial democracy through employee
    participation in management decisions has important
    implication for the supply information toemployees.
    Matters like settlement of wages, bonus, &profit sharing
    rest on adequate disclosure of relevant facts.
    Government: Government uses financial information for
    compiling statistics concerning calculation of
    profitability, taxes, computation of national income, and
    determination of the industrialgrowth.
    People Interested
    Stock Exchanges: Several stock exchanges also require
    accounting information for listing of securities.
    Consumers & Others: Consumer organizations, media,
    welfare organizations and public at large are also
    interested in condensed accounting information in order
    to appraise the efficiency and social role of the
    enterprises in different sectors of theeconomy.
    Role Of Accountant
    • Writing up accounts and preparing financial
    statements.
    • Audit of accounts.
    • Role as a management accountant.
    • Help to government, income tax, revenue
    department.
    • Role as cost accountant.
    • Role in merger liquidation.

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