by Soumya Rohilla
class 11f
roll no 26
MEANING :
Accounting is the measurement, processing, and communication of
financial and non financial information about economic entities such
as businesses and corporations. Accounting, which has been called
the "language of business", measures the results of an
organization's economic activities and conveys this information to a
variety of users, including investors, creditors, management,
and regulators. Practitioners of accounting are known
as accountants. The terms "accounting" and "financial reporting" are
often used as synonyms.
OBJECTIVES OF ACCOUNTING :
The main objectives of accounting are:
1)To maintain a systematic record of business transactions
Accounting is used to maintain a systematic record of all the financial transactions in a book of accounts.
For this, all the transactions are recorded in chronological order in Journal and then posted to principle
book i.e. Ledger.
2)To determine profit and loss
Every businessman is keen to know the net results of business operations periodically. To check whether
the business has earned profits or incurred losses, we prepare a “Profit & Loss Account”.
3)To determine the financial position
Another important objective is to determine the financial position of the business to check the value of
assets and liabilities. For this purpose, we prepare a “Balance Sheet”.
4)To provide information to various users
Providing information to the various interested parties or stakeholders is one of the most important
objectives of accounting. It helps them in making good financial decisions.
5)To facilitate management
By analyzing financial data and providing interpretations in the form of reports, accounting assists
management in handling business operations effectively.
FUNCTIONS OF ACCOUNTING :
The main objectives of accounting are:
1)Maintaining Systematic Accounting Records
This means that accounting records should be maintained following the accounting rules, principles and
concepts. It is so because reliable financial statements can be drawn if proper accounting records are
maintained.
2)Preparing Of Financial Statements
Financial statements means final accounts prepared at the end of accounting period. It includes Income
statements (Profit and Loss Account) and Position Statement (Balance Sheet) .
3)Meeting Legal Requirements
Accounting is to devise and develop such a system of keeping record and reporting the results as will
always meet and legal requirements to enable the proprietor or the authority to file various statements like
Income-Tax Returns, Sales-Tax Returns etc. and accounting records are always accepted in court as
evidence in the court of law.
4)Communicating the Financial Information
Interested parties related to the business organization such as owners, employees, suppliers, investors,
researchers, government, etc. remain eager to know various details regarding the financial positions of
that organization.
One of the primary functions of Accounting is to provide them with information regularly through various
reports.
LIMITATIONS OF ACCOUNTING :
The main limitations of accounting are:
1)Accounting is not Fully Exact:
Although most of the transactions are recorded on the basis of evidence such as sale or purchase or
receipt f cash, yet some estimates are also made for ascertaining profit or loss.
2) Accounting ignores the Qualitative Elements:
Accounting is an art of recording financial matters only, therefore qualitative elements are never
depicted by financial statements. The quality of staff is one of several features. It is the other limitations
of accounting.
3) Accounting Ignores Effect of Price Level Changes:
The value of money always changes due to inflation. Accounting statements are prepared at historical
cost, Money, as a measurement unit, changes in value. It does not remain stable. Unless price level
changes are considered while preparing financial statements, accounting information will not show true
financial results.
4) Unrealistic Information:
Accounting information may not be realistic since accounting statements are prepared following the
accounting concepts and conventions. For example, under the going concern concept, it is taken the
business will continue for a foreseeable future.
❑ Business Transactions : A business transaction is an economic event with a third party that is recorded in
an organization's accounting system. Such a transaction must be measurable in money.
❑ Capital : Capital is the amount invested in an enterprise by the proprietor or by partners.
❑
Capital = Assets – Liabilities
❑ Drawings : It is the amount drawn or goods taken by the proprietor or partner for personal use.
❑ Liabilities : It is the amount payable by the business. It is of two types : NON-CURRENT & CURRENT.
❑ Assets : Assets are the properties(tangible and intangible) owned by an entity or enterprise. It is of three
types : FIXED, CURRENT and FICTITIOUS.
❑ Expense : It is the cost incurred for generating revenue.
❑ Income : It is the profit earned during an accounting period.
❑ Profit : It is the income earned by the business from its Operating Activities.
❑ Gain : It is the increase in owner’s equity resulting from something other than from day to day earning.
❑ Loss : It is excess of expenses of s period over its revenues.
❑ Purchases : A temporary account used in the periodic inventory system to record
the purchases of merchandise for resale.
❑ Sales : It refers to any operating revenues that a company earns through its business
activities.
❑ Goods : They are physical items of trade that are purchased with the purpose of
resale.
❑ Stock : It is a tangible asset held by an enterprise for the purpose of sale in ordinary
course of business.
❑ Debtor : A debtor is a company or individual who owes money from the enterprise.
❑ Creditor : A creditor is an entity that extends credit, giving another entity permission
to borrow money to be repaid in the future.
❑ Voucher : A voucher is a document used by a company's accounts payable
department to gather and file all of the supporting documents needed to approve the
payment of a liability.
❑ Discount : It is the reduction in the price of goods or from the amount to be paid to a
Principle – Accounting principles are the rules of actions or conduct adopted by accountants
universally while recording accounting transactions.
Concepts
The term concept includes those basic
assumptions, conditions and ideas upon which
the science of accounting is based.
Convections
Convections are used to signify the customs