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Meaning Objectives Functions

This document provides an overview of financial accounting, including definitions of bookkeeping and accounting, objectives of accounting such as systematically recording transactions and ascertaining results, and functions of accounting such as measurement, forecasting, and decision-making.

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Manjula Devi
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27 views3 pages

Meaning Objectives Functions

This document provides an overview of financial accounting, including definitions of bookkeeping and accounting, objectives of accounting such as systematically recording transactions and ascertaining results, and functions of accounting such as measurement, forecasting, and decision-making.

Uploaded by

Manjula Devi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Module – 1 Introduction to Financial Accounting

Meaning of Book keeping:


Book keeping may be defined as an art of recording all the financial
transactions systematically in the books
Meaning of Accounting
The Committee on Terminology set up by the American Institute of Certified Public
Accountants formulated the following definition of accounting in 1961:
“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 result thereof.”
The American Accounting Association (AAA) defined accounting in 1966 as:
“Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgements and decisions by users of
the information”.
In 1970, the Accounting Principles Board (APB) of American Institute of Certified
Public Accountants (AICPA) enumerated the functions of accounting as follows:
“The process of recording, classifying, summarizing, analysing and
interpreting the financial transactions and communicating the results thereof
to the persons interested in such information”

OBJECTIVES OF ACCOUNTING
The objectives of accounting can be given as follows:
Systematic recording of transactions – Basic objective of accounting is to
systematically record the financial aspects of business transactions i.e. book-
keeping. These recorded transactions are later on classified and summarized
logically for the preparation of financial statements and for their analysis and
interpretation.
Ascertainment of results of above recorded transactions – Accountant prepares
profit and loss account to know the results of business operations for a
particular period of time. If revenue exceed expenses then it is said that
business is running profitably but if expenses exceed revenue then it can be
said that business is running under loss. The profit and loss account helps the
management and different stakeholders in taking rational decisions. For
example, if business is not proved to be remunerative or profitable, the cause of
such a state of affair can be investigated by the management for taking remedial
steps.
Ascertainment of the financial position of the business – Businessman is not only
interested in knowing the results of the business in terms of profits or loss for a
particular period but is also anxious to know that what he owes (liability) to the
outsiders and what he owns (assets) on a certain date. To know this, accountant
prepares a financial position statement popularly known as Balance Sheet. The
balance sheet is a statement of assets and liabilities of the business at a
particular point of time and helps in ascertaining the financial health of the
business.
Providing information to the users for rational decision-making – Accounting as a
‘language of business’ communicates the financial results of an enterprise to
various stakeholders by means of financial statements. Accounting aims to meet
the information needs of the decision-makers and helps them in rational decision-
making.
To know the solvency position – By preparing the balance sheet, management not only
reveals what is owned and owed by the enterprise, but also it gives the
information regarding concern’s ability to meet its liabilities in the short run
(liquidity position) and also in the long-run (solvency position) as and when they
fall due.

FUNCTIONS OF ACCOUNTING

The main functions of accounting are as follows:


Measurement: Accounting measures past performance of the business entity and
depicts its current financial position.
Forecasting: Accounting helps in forecasting future performance and financial
position of the enterprise using past data and analysing trends.
Decision-making: Accounting provides relevant information to the users of
accounts to aid rational decision-making.
Comparison & Evaluation: Accounting assesses performance achieved in relation
to targets and discloses information regarding accounting policies and contingent
liabilities which play an important role in predicting, comparing and evaluating
the financial results.
Control: Accounting also identifies weaknesses of the operational system and
provides feedbacks regarding effectiveness of measures adopted to check such
weaknesses.
Government Regulation and Taxation: Accounting provides necessary information to
the government to exercise control on the entity as well as in collection of tax
revenues.

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