ACCOUNTING FUNDAMENTALS
1.1 Introduction
* In all activities and in all organizations that require money and other economic resources. accounting is required to account for these resources.
* In other words, wherever money is involved, accounting is required to account for it.
* The purpose of accounting is to provide a means of recording, reporting, summarizing, and interpreting economic data. In order to do this, an accounting system must be designed.
* Accounting is the language of business.
*It has its origin from stewardship accounting' from 15 century when wealthy men used to employ stewards to manage their accounts.
1.2 Is Accounting A Science Or An Art?
* Accounting is both science and an art.
* Science may be defined as a systematized body of knowledge based on certain principles, which have universal application.
* Art, on the other hand, is the application of knowledge comprising of some accepted theories, principles, rules, concepts and conventions. It helps us to achieve our goals and tells us the manner in which we may attain our objectives in the best possible way. The more we practice an art the more expert we become in it.
* Accounting is a science because recording, classifying and summarizing of business transactions is done on the basis of certain principles such as principles of Double Entry System, which are universally applicable.
* Accounting is based on certain concepts and conventions and is subject to some limitations. It is influenced by bias and personal judgment of the accountant. The more a person does accounting, the more proficient he becomes in it. To this extent, accounting is still an art.
1.3 Branches Of Accounting
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Financial accounting: |
*
This is the original form of accounting and has been in use since the
beginning.
* It
includes Bookkeeping and Accountancy and is mainly related to recording and
preparation of financial statements.
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Managment accounting: |
*
It is that area of accounting, which assists the management in efficient
and successful operation of the organization concerned.
*
It is concerned with analysis, interpretation of financial accounting to !
derive meaning full conclusions for future growth
* There
are number of tools/techniques for this purpose like ratio analysis, fund
flow & cash flow statement analysis, comparative statements etc. |
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Cost accounting : |
*It
deals with the estimation, recording, allocation and control of costs.
*It
is followed by manufacturing concerns. The Object is
to :- 1.Compute
the cost of product being manufactured.
2. Curb
the cost through application of cost control techniques. |
1.4 Definition of Accountinon of Accounting
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1.5 Defference Between Book Keeping And Accounting
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preliminary in nature |
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