Accounting vs. Book-keepingBook-keeping concerns itself with the recording (correctly and in a set of books) of those transactions that result in the transfer of money or money’s worth. Whereas accounting is comprehensive in perspective. It extends to classifying, summarizing, presenting and even analyzing accounting information .
Accounting vs. Accountancy
Body of knowledge (consisting of principles, postulates, assumptions, buypsychedelicaustralia conventions, concepts and rules) governing the science of recording classifying and analyzing financial transactions is accounting. Whereas the practice and art of the science of accounting is termed as accountancy.To meet the ever increasing demands made on accounting by different interested parties (such as owners, management, creditors, taxation authorities etc.) the various branches have come into existence. Financial AccountingThe object of financial accounting is to ascertain the result (profit or loss) of business operations during the particular period and to state the financial position (Balance Sheet) as on a date at the end of the period.
The object of cost accounting is to find out the cost of goods produced or services rendered by a business. It also helps the business in controlling the costs by indicating avoidable losses and wastes.Management AccountingThe object of management accounting is to supply relevant information at appropriate time to the management to enable it to take decision and effect control.In this web primer, freepornoavis we are concerned only with financial accounting. The objects of financial accounting as stated above can be achieved only by recording the financial transactions in a systematic manner according to a set of principles. The recorded information has to be classified, analyzed and presented in a manner in which business results and financial position can be ascertained.
Uses of Accounting
Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information.
(1) How good or bad is the financial condition of the business?
(2) Has the business activity resulted in a profit or loss?
(3) How well the different departments of the business have performed in the past?
(4) Which activities or products have been profitable? foutatunisia
(5) Out of the existing products which should be discontinued and the production of which commodities should be increased.
(6) Whether to buy a component from the market or to manufacture the same?
(7) Whether the cost of production is reasonable or excessive?
(8) What has been the impact of existing policies on the profitability of the business?
(9) What are the likely results of new policy decisions on future earning capacity of the business?
(10) In the light of past performance of the business how it should plan for future to ensure desired results ?
Above mentioned are few examples of the types of questions faced by the users of accounting information. These can be satisfactorily answered with the help of suitable and necessary information provided by accounting.
Besides, accounting is also useful in the following respects :-
(1) Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records obviate the necessity of remembering various transactions.
(2) Accounting record, prepared on the basis of uniform practices, will enable a business to compare results of one period with another period.
(3) Taxation authorities (both income tax and sales tax) Deli Larchmont NY are likely to believe the facts contained in the set of accounting books if maintained according to generally accepted accounting principles.
(4) Cocooning records, backed up by proper and authenticated vouchers are good evidence in a court of law.
(5) If a business is to be sold as a going concern then the values of different assets as shown by the balance sheet helps in bargaining proper price for the business.
Limitations of Financial Accounting
Advantages of accounting discussed in this section do not suggest that accounting is free from limitations.
Following are the limitations:
Financial accounting permits alternative treatmentsAccounting is based on concepts and it follows ” generally accepted principles” but there exist more than one principle for the treatment of any one item. This permits alternative treatments with in the framework of generally accepted principles. For example, the closing stock of a business may be valued by anyone of the following methods: FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc., but the results are not comparable.
Financial accounting does not provide timely information
It is not a limitation when high powered software application like HiTech Financial Accenting are used to keep online and concurrent accounts where the balance sheet is made available almost instantaneously. However, manual accounting does have this shortcoming.
Financial accounting is designed to supply information in the form of statements (Balance Sheet and Profit and Loss Account) for a period normally one year. So the information is, at best, of historical interest and only ‘post-mortem’ analysis of the past can be conducted. The business requires timely information at frequent intervals to enable the management to plan and take corrective action. For example, streetwear if a business has budgeted that during the current year sales should be $ 12,00,000 then it requires information whether the sales in the first month of the year amounted to $ 10,00,000 or less or more?