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Meaning of Accounting
Need of Accounting
Scope of Accounting
Accounting Cycle
Meaning of Accounting:
Definition of Accounting:
Income statement shows the net income generated/net loss incurred by an enterprise
during a particular accounting period.
Cash Flow Statement shows how changes in balance sheet and income statement which
affect cash and cash equivalent. Basically it shows cash inflows and outflows among
operating, investing and financial activities of an enterprise.
These three statements when combined together forms Financial Statements . The financial
statements are required by all the stakeholders.
Importance of Business Accounting
Accounting is a service activity. It is important as it provides quantitative information of
financial nature to various stakeholders which is intended to be used in making economic
decision. These stakeholders include investors, management, government, suppliers, financiers,
regulators etc. Business accounting help in making a number of short term and long term
business decisions which helps an enterprise to grow as well as penetrate in market. The three
major statements which is generated by Business accounting system are as follows:
Income statement shows the net income generated/net loss incurred by an enterprise
during a particular accounting period.
Cash Flow Statement shows how changes in balance sheet and income statement which
affect cash and cash equivalent. Basically it shows cash inflows and outflows among
operating, investing and financial activities of an enterprise.
These three statements when combined together forms Financial Statements . The financial
statements are required by all the stakeholders.
In today’s dynamic and complex business environment it is very important to keep our
accounting records clean and up to date. Proper accounting is important to any enterprise
because of the following reason –
As discussed above, the accounting records reflects the results of operations as well as
statement of financial position. Also various balance sheet and profit & loss accounts
ratios are calculated which help user of financial statements to analyze the performance
of an entity. For example debt equity ratio, Current ratio, Turnover ratio etc. Also we can
compare previous period accounting data with current period as well as budgeted figures
for variance analysis.
The working capital and cash requirement of an enterprise can be duly taken care by
proper accounting system.
Proper business accounting ensures timely recording our liabilities which needs to be
paid within the prescribed time line. This includes provident fund, pension fund, VAT,
sales tax, Income tax. Timely payment of liabilities helps enterprises to be statutory
compliant.
Accounting data helps an enterprise to prepare budget and forecast for future period.
Business trends are projected based on past data produced by accounting system.
5. Helps in filing financial statements with regulators, stock exchanges and filing of tax
returns –
Enterprises are required to file the financial statements with ROC. In case of listed
entities the same is required to be filed with stock exchanges as well. For both indirect
and direct tax filing purposes, financial statements and other financial information are
required.
6. Other information –
For the above we can conclude that accounting is very important for any enterprises whether
listed or unlisted, profit oriented or not for profit, Government or private.
Scopes of accounting
1. Business
Accounting is widely applicable in the business sector. Today, in the modern world, most of the people
are engaged in business sector and all businessmen follow Generally Accepted Accounting Principle
(GAAP) to find out profit, loss and financial position of business firm.
2. Government organizations
Though, Government organizations do not follow Generally Accepted Accounting Principle (GAAP), its
keep systematic records of all transactions in order to find the position of public fund.
3. Non-Government organizations
Non-government and service organizations such as NGOS, INGOs, Red Cross Society, SOS etc which plays
a vital role in the development of nation also uses accounting. The accounting system used in these
organizations are called fund accounting.
4. Individuals
Individuals also perform economic activities to earn their livelihood. They also perform some
form of accounting to draw financial information for making personal economic decision.
Accounting cycle
Steps of the Accounting Cycle
3. All events: