Such accounting records are required to be maintained to measure the income of the business and communicate the information so that it may be used by managers, owners and other interested parties.
MEANING OF ACCOUNTING The main purpose of accounting is to ascertain profit or loss duringĪ specified period, to show financial condition of the business on a particular date and to have control over the firm's property. Thus, the art of accounting has been practised for centuries but it is only in the late thirties that the study of the subject 'accounting' has been taken up seriously. However, the modern system of accounting based on the principles of double entry system owes it origin to Luco Pacioli who first published the principles of Double Entry System in 1494 at Venice in Italy. This book not only relates to politics and economics, but also explain the art of proper keeping of accounts. Accounting was practised in India twenty three centuries ago as is clear from the book named "Arthashastra" written by Kautilya, King Chandragupta's minister. Was not as developed as it is today because in the early stages of civilisation, the number of transactions to be recorded were so small that each businessman was able to record and check for himself all his transactions. ORIGIN AND GROWTH OF ACCOUNTING Accounting is as old as money itself. whether he will be in a position to meet all his commitments in the near future or he is in the process of becoming a bankrupt. He must know : (i) What he owns? (ii) What he owes? (iii) Whether he has earn a profit or suffered a loss on account of running a business? (iv) What is his financial position i.e. The need for accounting is all the more great for a person who is running a business. This will help her in planning her future income and expenses (or making out a budget) to a great extent. Thus, at the end of a period (say a year) she can see for herself about her financial position i.e., what she owns and what she owes. Similarly she can find the sources of her receipts such as salary of her husband, rent from property, cash gifts from her relatives, etc. For example, she can find out the total amount spent by her during a period (say a year) on different items say milk, food, education, entertainment, etc. The balance of cash in hand or deficit, if any at the end of a period.ģ In case the housewife records her transactions regularly, she can collect valuable information about the nature of her receipts and payments. Whether her receipts are more than her payments or vice-versa?
The sources from which she received cash and the purposes for which it was utilised. Such a record will help her in knowing about : (i) on some other page or pages of her diary in a chronological order. She can record her receipts of money on one page of her "household diary" while payments for different items such as milk, food, clothing, house, education etc. For example, a housewife has to keep a record of the money received and spent by her during a particular period. Persons like housewives, Government and other individuals also make use of a accounting. Though accounting is generally associated with business but it is not only business which makes use of accounting. It communicates the results of business operations to various parties who have some stake in the business viz., the proprietor, creditors, investors, Government and other agencies. The basic function of a language is to serve as a means of communication Accounting also serves this function. INTRODUCTION Accounting has rightly been termed as the language of the business. OBJECTIVE After reading this lesson, you should be able toĭefine accounting and trace the origin and growth of accounting.ĭistinguish between book-keeping and accounting.Įxplain the nature and objectives of accounting.ĭiscuss the branches, role and limitations of accounting. FINANCIAL ACCOUNTING : MEANING, NATURE AND ROLE OF ACCOUNTING STRUCTURE 1.0ĭistinction between Book-Keeping and Accountingĭistinction between Accounting and Accountancyġ.10 Role of Accounting 1.11 Limitations of Accounting 1.12 Systems of Accounting 1.13 Summary 1.14 Keywords 1.15 Self Assessment Questions 1.16 Suggested Readings
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