ACCOUNTANCY

INTRODUCTION TO ACCOUNTING

Meaning of Accounting :

Accounting is an information system that provides accounting information to the users for correct decision-making.
‘‘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 financial character, and interpreting the results thereof.’’

The American Institute of Certified Public Accountants
ACCOUNTING CYCLE :

	Transaction (identification)		Journal/Subsidiary books (Recording)
	Ledger (Classifying)		Trial Balance (Summarizing)
	Final Accounts  (Results)		Analysis (Interpretation)

Objectives of Accounting :

1. To provide useful information to various interested parties.
2. To Maintain systematic and complete Records of Business Transactions
3. To Calculate Profit and Loss
4. To ascertain the financial position of the business.

Interested Users of Information :

There are number of users interested in knowing about the financial soundness and the profitability of the business.

Users	Classification	Information the user want
Internal	Owner	return on their investment, financial health of their company/business
	Management	to evaluate the performance, to take various decisions
External	Investors and potential Investors	safety and growth of their investments, future of the business
	Creditors	Assessing the financial capability, ability of the business to pay its debts
	Lenders	Repaying capacity, credit worthiness
	Tax Authorities	assessment of due taxes, true and fair disclosure of accounting information
	Employees	Profitability to claim higher wages and bonus, whether their dues (PF, ESI etc.) deposited regularly.
	Others	Customers, Researchers etc. may seek different information for different reasons.

Qualitative Characteristics of Accounting Information :

Accounting information is useful for interested users only if it possess the following characteristics :

1. Reliability: Means the information must be based on facts and be verified through source documents by anyone. It must be free from bias.


2. Relevance: To be relevant, information must be available in time and must influence the decisions of users by helping them form prediction about the outcomes.


3. Understandability: The information should be presented in such a manner that users can understand it well.


4. Comparability: The information should be disclosed in such a manner that it can be compared with previous years’ figures of business itself and other firm’s data.

Limitations of Accounting :

The accounting information suffers from the following limitations:

1. Based on historical data
2. Biasness
3. Qualitative information not shown
4. Ignores price level changes