Accounting – An Introduction
Meaning and Scope of Accounting
Transaction is used to mean ‘a business, performance of an act, an agreement’ while event is used to mean ‘a happening, as a consequence of transaction(s), a result.’
Meaning of Accounting
Accounting is simply an art of record keeping. The process of accounting starts by first identifying the events and transactions which are of financial character and then be recorded in the books of account.
The Accounting Principles Board (APB) of American Institute of Certified Public Accountants (AICPA) enumerated the functions of accounting.
Objectives of Accounting
Book-keeping is an activity concerned with the recording of financial data relating to business operations in a significant and orderly manner.
Objective of Book-keeping: Complete Recording of Transactions
Distinction between Book-Keeping and Accounting
|1||It is a process concerned with recording of transactions.||It is a process concerned with summarising of the recorded transactions.|
|2||It constitutes as a base for accounting.||It is considered as a language of the business.|
|3||Financial statements do not form part of this process.||Financial statements are prepared in this process on the basis of book-keeping records.|
|4||Managerial decisions cannot be taken with the help of these records.||Management takes decisions on the basis of these records.|
|5||There is no sub-field of book- keeping.||It has several sub-fields like financial accounting, management accounting etc.|
|6||Financial position of the business cannot be ascertained through book-keeping records.||Financial position of the business is ascertained on the basis of the accounting reports.|
Accounting Concepts, Principles and Conventions
Accounting concepts define the assumptions on the basis of which financial statements of a business entity are prepared. These accounting concepts lay the foundation on the basis of which the accounting principles are formulated.
“Accounting principles are a body of doctrines commonly associated with the theory and procedures of accounting serving as an explanation of current practices and as a guide for selection of conventions or procedures where alternatives exist.”
Accounting conventions emerge out of accounting practices, commonly known as accounting principles, adopted by various organizations over a period of time.
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