Summary
Summary ACCOUNTANCY FOR BEGINNERS
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this document is a compact file containing information about accountancy , accounting , book keeping , etc . This is from the Ca syllabus 2022.
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The committee on terminology set up by the American Institute of Certified Public Accountantsformulated the following definition of accounting in 1961 :-
ACCOUNTING IS AN ART OF RECORDING CLASSIFYING AND SUMMARISING IN A SIGNIFICANT
MANNER AND IN TERMS OF MONEY , TRANSACTIONS AND EVENTS WHICH ARE , IN PART AT
LEAST OF A FINANCIAL CHARACTER , AND INTERPRETING THE RESULT THERE OF .
EVOLUTION OF ACCOUNTING
Stewardship Accounting:
It is the oldest form of accounting, which allowed stewards to discharge there accounting duties. In old
days, wealthy people used to employ the stewards to manage their property and wealth. The method of
accounting used by this steward was known as Stewardship Accounting .It became the base for Financial
Accounting, which is presently followed. However, this method was only used manage the wealth of
wealthy and business man and not for large scale business.
Financial Accounting:
When large scale business emerged , like joint stock company , and there was divorce of ownership from
the management. To protect the interest of owners/shareholders , Financial Accounting came into
existence. It got legal status due to change in relationship of owners , economic entity , and the
managers .Financial Accounting gave an overview periodic performance by way of profit & loss account,
balance sheet , etc , and emerged as an information system to identify , measure and communicate
useful information for informed judgements decisions by a broad group of users .
Management Accounting:
Under this the accounting information was generated to aid management decision- making in particular.
It contributed alot to improve the quality of management decisions. This new dimension of accounting is
called Management Accounting and it is the development of 20th Century only.
Social Responsibility Accounting:
It is in the formative process, which aims at accounting for the social cost incurred by business as well as
the social benefit, created by it. While earning profit, an enterprise incurs numerous social costs like
pollution, using the resources of society like materials, land, labor etc. To compensate for this social
cost, in today’s world, an enterprise is expected to generate some social benefits also like employment
opportunities, recreation activities, more choice to customers at reasonable price, better quality
products , etc . This study is known as Social Responsibility Accounting .
OBJECTIVES OF ACCOUNTING
The objectives of accounting can be given as follows :-
Systematic recording of transactions :-
, Basic objective of accounting is to systematically record the financial aspects of business transactions i.e.
book- keeping. These recorded transactions are later on classified and summarized logically for the
preparation of financial statements and for their analysis and interpretation .
Ascertainment of results of above recorded transactions :-
Accountant prepares profit and loss account to know the results of business operations for a particular
period of time. If revenue exceed expenses then it is said that business is running profitably but if
expenses exceed revenue then it can be said that business is running under loss. The ascertainment of
Profit and loss or financial performance of business is main goal of accounting as it helps management
and different stakeholders in decision making .
Ascertainment of the financial position :-
A businessman is not only interested in knowing the results of the business in terms of profit or loss for
a particular period but is also anxious to know that what he owes (liability) to the outsiders and what he
owns (assets) on a certain date. To know this , accountant prepare a financial position statement
popularly known as Balance Sheet. The balance sheet is a statement of assets and liabilities of the
business at a particular point of time and helps in ascertaining the financial health of the business.
Providing information to the users for rational decision making :-
Accounting as a ‘language of business’ communicates the financial results of an enterprise to various
stakeholders by means of financial statements. Accounting aims to meet the information needs of the
decision-makers and helps them in rational decision-making.
To know the solvency position:-
By preparing the balance sheet, management not only reveals what is owned and owed by the
enterprise, but also it gives the information regarding concern’s ability to meet its liabilities in the short
run (liquidity position) and also in the long-run (solvency position) as and when they fall due.
FUNCTIONS OF ACCOUNTING
The main functions of accounting are as follows :-
Measurement
Accounting measures past performances of the business entity and depicts its current financial position .
Forecasting
Accounting helps in forecasting future performances and financial position of the enterprise using past
data and analysis trend .
Decision making
Accounting provides relevant information to the users of accounts to aid rational decision making .
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