Meaning, need and objectives of accounting - class-XI

It is clear from the definition that accounting is not only concerned with recording, classifying or summarizing the transactions but it is also plays an important role in providing appropriate information to the business for decision making. 

For all business transactions, a ledger account is opened in the ledger to have a summary of each account. Balancing has to be done after a particular period for each of the account to know the final position of account. 

This is very much clear from the definition of accounting that all business transactions must be recorded in books of account in the chronological order. 

It is very clear from the definition of accounting that accounting is not only concerned with recording, classifying and summarizing the transactions but it also plays an important role in providing appropriate information to the business for decision making. Communicating the information to all the stakeholders is a last step of accounting.

Modern accounting is not limited to financial data; it involves the collection and analysis of both financial and non-financial information to support decision-making and performance evaluation.

The term 'Sales' is reserved for the sale of goods in which the business deals in the ordinary course of business. Office fixtures are fixed assets, not trading goods, so their disposal is recorded as a sale of an asset rather than 'Sales'.

Accounting is the systematic process of identifying, measuring, recording, classifying, and summarizing financial transactions. It serves as the primary system for maintaining financial records.

Accounting records only those transactions & events in terms of money which are of a financial character. Transactions which are not of a financial character are not recorded in the books of account.

Accounting is widely referred to as the language of business because it provides a standardized way to communicate financial performance and position to various stakeholders.

Real accounts relate to assets. Tangible real accounts represent assets that have a physical existence, such as machinery, cash, or inventory. Patents and goodwill are intangible real accounts.

In the context of Indian Accounting Standards (AS), there are 31 standards currently in force, though many have been superseded by Ind AS.

Salary, Wages, and Rent are nominal accounts (expenses). Outstanding A/c is a representative personal account, making it the odd one out.

During 1500 A.D., accounting was used by business firms for recording transactions related to business.

Accounting is universally defined as the language of business, enabling the communication of financial results to interested parties.

The relevant range is the range of activity within which the assumptions about cost behavior (fixed or variable) remain valid.

An official entity that represents bondholders and ensures stated rules in indenture is classified as trustee. A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions.

All business transaction which are in monetary terms are to be recorded in books of account in a chronological order. This function is known as the process of financial accounting.

Under single entry system , no purchase, sales accounts are maintained. Only cash, bank and personal ledgers are maintained.

As the definition says "accounting is the art of recording, classifying and summarizing all the monetary transactions in a significant manner". The prime function of accounting is recording and classifying  the business transactions.

Wealth maximisation is the concept of increasing the value of the business in order to increase the value of the shares held by shareholders, therefore it is an objective of enterprise.

Maintaining proper and fine accounts has become very essential today, as a result, of increasing competition in the business-world. Every business organization is, therefore, supposed to maintain fine accounts  comprising of all the financial transactions, financial as well as non-financial information. We all know that any accounting involves a fine recording, summarizing, proper classification as well as the interpretation and communication of financial information. Every transaction has to be recorded first so that the other processes can be carried out effectively. Therefore the first step in the accounting process is recording.

The first step in the process of accounting cycle is recording of transactions in journal and ledger. After this process, summarizing takes place. Summarising involves posting from ledger to prepare a trial balance and then the items of trial balance are posted in profit and loss account from which we get the net profit of the firm. After that balance sheet of the company is prepared from which we get the details about the assets and liabilities of the business of the firm. So basically summarizing involves trial balnace,profit and loss account and balancesheet.

I) A business is required to maintain separate financial records from its owners and investors. An accounting entity allows for taxing authorities to assess proper levies in accordance with tax rules. Different accounting entities have different financial reporting requirements

Accounting is an art of recording, classifying, summarizing and interpreting the data in a significant manner of money's worth business transactions.

The book of original entry or prime entry is journal in which all day to day transactions are recorded. All the transactions from journal are posted to ledger which consists of different accounts on the basis of transactions recorded in journal. Hence, it is regarded as the second important stage in the accounting process.

The standard hours per unit is derived from the labor routing, which is a compilation of the normal amount of time expected to be required to manufacture a unit. Therefore, the standard hours allowed is 750 hours, which is calculated as 500 units multiplied by 1.5 hours per unit.

Accounting cycle consists of various steps such as recording,summarising,analysing and interpretation. After carrying out all the steps of recording and summmarising interpretation of financial statements takes place. It is carried out so that managers can make important decisions regarding company welfare. Ratio and flow statements makes it effective to carry out interpretation easily. Hence, interpretation is usually done through ratio and flow statements.

Accounting process consists of a number of steps which starts from recording of transaction and ends at providing interpretation of data in the form of financial statements. Balance sheet consists of assets on the right hand side and liabilities plus capital on left hand side. It is prepared at the end and shows the amount is tallied or not.

Decision-making is regarded as the cognitive process resulting in the selection. Every decision-making process produces a final choice, which may or may not that are elicited during the deliberation of future consequences and that mark. This stage takes place prior to and during a moral dilemma.

The cost of each component of capital is known as specific cost of capital. A firm raises capital from different sources such as equity, preference, debentures, etc. 

Accounting Equation :

As per the definition of accounting, it is a process of recording, classifying, summarising, analysing and interpreting the financial transactions and communicating the result thereof to the users of such information.

Book- keeping is the process of the daily record - keeping of all of a company financial transactions. Book- keepers record the sales, expenses, cash and bank transactions of the business in a general ledger. The first thing you need to do when you start a business is realizing that this ledger and its accuracy are central to your company finances. So the work of accounting depends upon book keeping as the book keeping is the base of recording all the transactions. 

Book keeping is both art and science. It is art as it requires creative and judgment and skills in order to perform accounting functions well discipline and training is required. It is also considered as science because it is a body of knowledge.  

Conventions are the guidelines that arise from the practical application of accounting principles. It is not legally binding practice rather, it is a generally accepted convention based on customs and designed to help accountants  overcome practical problems that arise out of the preparation of financial statements. 

Book - keeping and accounting are not the same thing although they both involve the process of recording the financial transactions  of a business. Book -  keeping  are two different  terms. 

A person or firm whose liabilities exceed the value of owned assets is termed as insolvent. It is the inabilities of the company or person to pay liabilities as they become due. 

Book-keeping is primary/basic in nature as it is a part of accounting itself. Literally, it means the activity of keeping financial books i. e recording financial transactions and events. 

Classification is concerned with the systematic analysis of the recorded data with a view to group transactions or entries of one nature at one place. The work of classification is done in the book called "ledger". This book contains on different pages individual account heads under which all financial transactions of similar nature are collected.

In 1941, The american institute of Certified Public Accounts (AICPA) had defined accounting as the art of recording, classifying and summerising in a significant manner and in terms of ,money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof. With greater economic development resulting in changing role of accounting its scope become broader.

Communication is concerned with the transmission of summarized, analysed and interpreted information to the end user to enable them to make rational decision. The accounting information after being meaningfully analysed and interpreted has to be communicated in a proper form and manner to the proper person. Hence, communicating is the last phase of Accounting process.

Recording is the first phase of accounting process. It is essentially concerned with not only ensuring that all business transactions of financial character are, in fact recorded but also that they are recorded in an orderly manner.

Book keeping is a process of recording an economic event of the business. Once the transaction is done, this has to be recorded immediately in the books of account to have a proper accounting. 

Financial accounting information is the accounting information concerned with the summary, analysis and reporting of financial transactions pertaining to a business. Financial statements help in comparison, evaluation and predicting financial results. Financial accounting  reports the results and position of business to government, creditors, investors, and external parties. It is useful for identifying weakness of the system and install appropriate control mechanism. 

Financial accounting information is the accounting information concerned with the summary, analysis and reporting of financial transactions pertaining to a business. This involves the preparation of financial statements available for public consumption. Stockholders, suppliers, banks, employees, governments agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes. 

Double Entry System of Accounting is based on dual aspect. That means, for every business transaction, there are affects in books of account. For every debit entry, there will be a credit and vice versa. 

Book keeping and accountancy are not to be considered as identical terms. Book keeping is defined as recording and classifying the transaction. Summarizing, interpreting and communicating the financial data is part of accounting.

Book keeping is an activity concerned with the recording and classification of financial data relating to business operations in significant and orderly manner. It is a process concerned with financial data recording. 

The given statement is true. The reason is that every business involves the element of risk.Business risks implies uncertainty in profits or danger of losses due to some unforeseen events.

Matching concept of accounting defines that all the expenses need to be recorded in the books of account for the same period against which the revenue is recorded in the books. 

The accounting cycle is a process designed to make financial accounting of business activities easier for business owners.

Definition of accounting is:

Accounting is considered an art because it requires skill and judgment to record and interpret data, and a science because it follows a systematic body of rules and principles.

Accounting functions as an information system by taking raw financial data (input), processing it through bookkeeping and analysis, and generating reports (output) for users.

Accounting plays an important and useful role for the business owner. Main advantages are :

The basic function of accounting is to record all the business transactions and classify, summarize and interpret in such a way that financial statements will give the true and fair view of the financial position of the company. 

To review is to check the work already done/performed.

Modern accounting includes both financial data (monetary transactions) and non-financial data (quantitative and qualitative information). Contemporary accounting practices encompass sustainability reporting, ESG metrics, corporate social responsibility data, key performance indicators, and other non-financial information essential for comprehensive business evaluation.

In accounting, a first recording of financial transactions as they occur in time, and  in accounting and bookkeeping called a journal is a record of financial transactions in order by date. A journal is often defined as the book of original entry. Manual systems usually had a variety of journals such as a sales journal, purchases journal, cash receipts journal, cash disbursements journal, and a general journal.so that they can then be used for future reconciling and transfer to other official accounting records such as the general ledger is a journal.

Accounting is based on certain basic concepts. One of the concept is "Separate Entity Concept". This defines that, for all accounting purposes, the business is considered to be a separate entity distinct from its owners. The transactions of business are recorded in the books of the business and the position of owner in his business will be like other creditors. 

A loss by theft or losses by fire, flood, earthquake, war, accidents, in transit, etc. are abnormal losses. These losses are avoidable and not inherent in nature. These losses reduce the value of closing stock as well as profit. 

The manufacturing account is prepared to determine the cost of production. The debit side includes all production costs, while the credit side includes the cost of finished goods transferred to the trading account. Since there is usually work-in-progress inventory at the end, the debit side is typically greater than the credit side.

Ownership passes when the customer accepts the goods, or when the specified time period for return expires without the goods being returned.

The number and kinds of books of accounts kept by any business depends upon its particular need. But there are two major books which must invariably be maintained by every business i.e. journal and ledger. Every transaction is first recorded in the journal which is considered as subsidiary books of account. Journal merely helps the posting of entries in to ledger, that's why it is called as subsidiary books of account.