Introduction to Accounting - Learn Accounting Online

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Xuất bản 20/08/2015
INTRODUCTION: Accounting is aptly called the language of business of business. This designation is applied to applied to accounting because it is the method of communicating business information. The basic function of any language is to serve as a means of communication. Accounting duly serves this function. The task of learning accounting is essentially the same as the task of learning a new language. But the acceleration of change in business organization has contributed to increasing the complexitities in this language. Like other languages, it is undergoing continuous change in an attempt to discover better means of communications. To enable the accounting language to convey the same meaning to all people as far as practicable it should be made standard. To make it a standard language certain accounting principles, concepts and standards have been developed over a period of time. EVOLUTION OF ACCOUNTING: Accounting is as old as money itself. it has evolved, as have medicine, law and most other fields of human activity in response to the social and economic needs of society. People in all civilizations have maintained various types of records of business activities. The oldest known are clay tablet records of the payment of wages in Babylonia around 600B.C.Accounting was practiced in India twenty-four centuries ago as is clear from kautilya's book 'Arthahastra' which clearly indicates the existence and need of proper accounting and audit. BOOK KEEPING AND ACCOUNTING: Book keeping is that branch of knowledge which tells us how to keep a record of business transactions. It is considered as an art of recording systematically the various types of transactions that occur in a business concern in the books of accounts. Accounting is a term which refers to a systematic study of the principle and methods of keeping accounts. Accountancy and book keeping are related terms; the former relates to the theoretical study and the latter refers to the practical work. DEFINITION OF ACCOUNTING: Accounting has been defined by the American Accounting Association committee as"... the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information". This may be considered as good definition because of its focus on accounting as an aid to decision making. The American Institute of Certified and Public Accountants Committee on Terminology and defined accounting as "Accounting is the art of recording classifying and summarizing, 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 results thereof". SCOPE OF ACCOUNTING: Individuals engaged in such areas of business as finance, production, marketing, personal and general management need not be expert accountants but their effectiveness is no doubt increased if they have a good understanding of accounting principles. Everyone engaged in business activity, from the bottom level employee to the chief executive and owner, comes into contact with accounting. The higher the level of authority and responsibility, the greater is the need for an understanding of accounting concepts and terminology. FUNCTIONS OF ACCOUNTING KEEPING SYSTEMATIC RECORDS: This is the fundamental function of accounting. The transactions of the business are properly recorded, classified and summarized into final financial statements -- Income statement and the Balance sheet. PROTECTING THE BUSINESS PROPERTIES: The second function of accounting is to protect the properties of the business by maintaining proper record of various assets and thus enabling the management to exercise proper control over them. COMMUNICATING THE RESULTS: As accounting has been designated as the language of business, its third function is to communicate financial information in respect of net profits, assets, liabilities, etc., to the interested parties. MEETING LEGAL REQUIREMENTS: The fourth and last function of accounting is to devise such a system as will meet the legal requirements. The provisions of various laws such as the companies Act, Income Tax Act, etc., require the submission of various statements like Income Tax returns, Annual Accounts and so on. Accounting system aims at fulfilling this requirement of law.
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