Privacy Policy for http://performanceaccounting.blogspot.com/
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Sunday, August 14, 2011
EVOLUTION AND MEANING OF ACCOUNTING
There are many evidences of keeping records back in 3000 BC. But, systematic book keeping was only found sometimes in the 14th Century. The first record of a complete accounting was found in the records of Geneo, Italy. The first published work describing accounting was one of the five sections in Summa de Arithmetica, Geometria, Proportion et Proportionality (everything about Arithmetic, Geometry and Proportion) published by Luca Pacioli in1494 in Venice. This section of accounting was the world's only accounting textbook until the 16th century. Luca Pacioli is known as the "Father of Accounting". He introduced Double Entry System in 1494 in Italy.
Meaning
Accounting is the process of recording business transactions in systematic way in terms of money, reporting results of business activities and interpreting such results for the purpose of effective control of future activities. It includes identifying, recording, classifying, summarizing, analyzing and interpreting financial transactions.
Meaning
Accounting is the process of recording business transactions in systematic way in terms of money, reporting results of business activities and interpreting such results for the purpose of effective control of future activities. It includes identifying, recording, classifying, summarizing, analyzing and interpreting financial transactions.
Characteristics of Accounting
The following are the characteristics of accounting:
1. In accounting system, only those transactions which are related to money are recorded in the books of accounts. Non-monetary transactions like strikes are not recorded in the books of accounts.
2. Accounting is an art of recording business transactions in the books of accounts maintained as per specific rules and principles.
3. In accounting process, those transactions relating to particular nature are recorded in separate accounts, so it is a process of classifying business transactions.
4. Accounting is an art of summarizing all business transactions as it includes the act of balancing ledger accounts, preparing trial balance and finally final accounts.
5. Accounting includes analyzing and interpreting the financial data to compare such results with that of previous years.
1. In accounting system, only those transactions which are related to money are recorded in the books of accounts. Non-monetary transactions like strikes are not recorded in the books of accounts.
2. Accounting is an art of recording business transactions in the books of accounts maintained as per specific rules and principles.
3. In accounting process, those transactions relating to particular nature are recorded in separate accounts, so it is a process of classifying business transactions.
4. Accounting is an art of summarizing all business transactions as it includes the act of balancing ledger accounts, preparing trial balance and finally final accounts.
5. Accounting includes analyzing and interpreting the financial data to compare such results with that of previous years.
Importance of Accounting
1.Importance to trading concern- Business is very competitive nowadays. Business cannot operate on sound basis for a long time until the financial records are kept and made available to its users. Accounting helps to determine profit or loss of the business. It also gives knowledge of debtors, creditors, other assets and liabilities.
2.Importance to non-trading concerns- Although the non- trading concerns are established with service motive, accounting is equally importance to them as they have to carry out their works within their funds and also their operations have to be answerable to the board of governors. They need to prepare balance sheet to know the financial position of their business.
3.Importance to the professionals and individuals- Professionals such as contractors, engineers, lawyers,etc. maintain accounting books to know their surplus or deficit of
incomes and expenditures of a particular period. Accounting also help farmers, workers and politicians to record their sources and uses of funds. It helps them to make expenditures within the limitation of budget.
4. Importance to the government- Accounting also helps to record the expenditures and revenues of the government. Every government should maintain a large number of accounting forms and books such as budget sheet, cash book, statement of expenditure,etc. With the help of accounting information the government plans for future budget. Accounting can be provided as documentary proof of the activities carried by a government, so it acts as a memory centre.
Principles of Accounting
The following are the principles of accounting:
1. Principle of business entity- In accounting every business organization is treated as a separate body from its owner. Business are perceived treated as separate entities and the purpose of accounting is to record its transactions and report its financial position and profitability.Transactions of owners are not recorded in the business.
2. Principle of money measurement- The transactions are measured, recorded and reported
in terms of monetary value which is known as money management principle. Expression of all assets and liabilities in terms of money creates common measure that permits addition and subtraction of all forms of assets and liabilities and makes possible the
preparation of financial statements.
3. Principle of accounting period- The life of the business is perpetual but it has to report the results of the activities conducted in specific period. Generally, one year is taken as an accounting period.
4. Cost principle- Cost principle states that all the transactions should be recorded at their monetary cost of acquisition. Assets and liabilities are recorded in the books of accounts at the acquisition and are carried from year to year at acquisition cost,irrespective of any subsequent increase or decrease in their market value.
5. Realization principle- According to this principle, revenue is measured by amount charged for goods sold or services rendered to the customers. It states that revenue should be recognized in the period when sale is made and specifies that revenues should be measured as cash received and cash equivalent of other item received.
6. Objectivity principle- This principle states that accounting data should be verifiable. It means that accounts which are prepared should be capable of independent verification.
7. Matching concept- In it, all the expenses incurred in generating revenue should be identified or matched with the revenue generated, period by period. This concept attempts to charge to an accounting period only those expenses which are consumed during the period.
1. Principle of business entity- In accounting every business organization is treated as a separate body from its owner. Business are perceived treated as separate entities and the purpose of accounting is to record its transactions and report its financial position and profitability.Transactions of owners are not recorded in the business.
2. Principle of money measurement- The transactions are measured, recorded and reported
in terms of monetary value which is known as money management principle. Expression of all assets and liabilities in terms of money creates common measure that permits addition and subtraction of all forms of assets and liabilities and makes possible the
preparation of financial statements.
3. Principle of accounting period- The life of the business is perpetual but it has to report the results of the activities conducted in specific period. Generally, one year is taken as an accounting period.
4. Cost principle- Cost principle states that all the transactions should be recorded at their monetary cost of acquisition. Assets and liabilities are recorded in the books of accounts at the acquisition and are carried from year to year at acquisition cost,irrespective of any subsequent increase or decrease in their market value.
5. Realization principle- According to this principle, revenue is measured by amount charged for goods sold or services rendered to the customers. It states that revenue should be recognized in the period when sale is made and specifies that revenues should be measured as cash received and cash equivalent of other item received.
6. Objectivity principle- This principle states that accounting data should be verifiable. It means that accounts which are prepared should be capable of independent verification.
7. Matching concept- In it, all the expenses incurred in generating revenue should be identified or matched with the revenue generated, period by period. This concept attempts to charge to an accounting period only those expenses which are consumed during the period.
Accounting Process
Following processes are followed in the accounting :
1. Identification of financial transactions: In accounting, only those transactions which are of financial nature are recorded in the books of accounts. If a transaction do not have financial character then such transactions are not recorded.
2. Recording of financial transactions: In accounting, financial transactions are recorded in systematic way in a book called "journal." This book is further sub-divided into various subsidiary books such as Cash Book, Purchase Book, Sales Book, Purchase Return Book and Sales Return Book.
3. Classifying of financial transactions: There may be thousands of records and it may be troublesome to find out details about a particular transaction. So, for the easy location of the transaction, the transactions of same nature are grouped into one place by opening accounts in a book called "ledger."
4. Summarizing: The classified information may be large in number and the users of accounting information may not have time to go through all the records. So, for presenting the data in concise manner, summarizing is done. It includes preparation of trading account, profit and loss account and balance sheet.
5. Communicating: The processed information have to be communicated to those people who have to make the use of them like owners, managers, creditors,etc. Communicating is done through an annual report.
1. Identification of financial transactions: In accounting, only those transactions which are of financial nature are recorded in the books of accounts. If a transaction do not have financial character then such transactions are not recorded.
2. Recording of financial transactions: In accounting, financial transactions are recorded in systematic way in a book called "journal." This book is further sub-divided into various subsidiary books such as Cash Book, Purchase Book, Sales Book, Purchase Return Book and Sales Return Book.
3. Classifying of financial transactions: There may be thousands of records and it may be troublesome to find out details about a particular transaction. So, for the easy location of the transaction, the transactions of same nature are grouped into one place by opening accounts in a book called "ledger."
4. Summarizing: The classified information may be large in number and the users of accounting information may not have time to go through all the records. So, for presenting the data in concise manner, summarizing is done. It includes preparation of trading account, profit and loss account and balance sheet.
5. Communicating: The processed information have to be communicated to those people who have to make the use of them like owners, managers, creditors,etc. Communicating is done through an annual report.
Government and Commercial Accounting
Government Accounting- Government accounting is the accounting used by government offices to keep the record of revenue and expenditures of government. It provides necessary information and data to the government for various activities and it helps to control over budget and fix the responsibility. It is maintained on cash basis. It provides information about the services rendered to the public by utilizing public funds and properties. In it, the financial operations are governed by legal provisions. The main purpose of it is to reflect the plans and policies of the government in financial terms.It is prepared for the consumption of government offices and general public.It is maintained on the basis of government budget.
Commercial Accounting- Commercial Accounting is the accounting used by business firm to calculate the amount of profit or loss made during a period. In it, outstanding expenses and accrued expenses are also considered. Government is not responsible in any financial activity and financial activities are not governed by the legal government. It is maintained for the consumption of owner of enterprises. The main purpose of it is to find the profit earned or loss suffered during a financial year
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