MODULE 1

PRINCIPLES OF DOUBLE ENTRY BOOK-KEEPING

CLASS 1 IMPORTANCE AND SCOPE OF ACCOUNTING

DEFINITION OF ACCOUNTING:
AICPA (1941): Accounting is an 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 results thereof.

DEFINITION OF ACCOUNTING:
AAA (1966): The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

FEATURES OF ACCOUNTING:
1. Identifying the transactions and events 2. Measuring the identified transactions and events. 3. Recording 4. Classifying 5. Summarizing 6. Analyzing 7. Interpreting 8. Communicating

RELATED TERMS:
1. Transaction: A transaction is an exchange in which each participant receives or sacrifices value. E.g. purchase of plant and machinery. 2. Event: An event is a happening of consequence to an entity. E.g. use of raw material for production.

RELATED TERMS:
3. Accountancy: It refers to a systematic knowledge of accounting. It explains why to do and how to do of various aspects of accounting. 4. Accounting: It refers to the actual process of preparing and presenting the accounts. It is the art of putting the academic knowledge of accountancy into practice.

RELATED TERMS:
5. Book-keeping: It is a part of accounting and is concerned with record keeping or maintenance of books of accounting which is often routine and clerical in nature. It covers: identifying, measuring, recording and classifying.

6. Liquidation: Liquidation is usually the last stage of a workout plan or bankruptcy proceeding for a company.

RELATED TERMS:
7. Amalgamation: Amalgamation is the merger of one or more companies with another company or the merger of two or more companies to form one company.IT Act, 1961 8. Absorption: Absorption is the process under which an existing large company purchases the business of another small company or companies doing similar business.

IMPORTANCE OF ACCOUNTING: It is the language of the business.

Link between outsiders and company.

It is used by various users, both internal and external, for their own purposes.

Used for planning and controlling

Analysis purpose / decision making

IMPORTANCE OF ACCOUNTING: Record keeping Prevention/discovery of fraud Getting funds and loans

Reputation and credit building

Legal obligation / Settling of law

IMPORTANCE OF ACCOUNTING: Required for liquidation, amalgamation, absorption etc. Required for regulatory bodies like income tax office, sales tax office, company law, SEBI(Security Exchange Board of India), etc. Facilitates a comparative study Facilitates control over the assets.

IMPORTANCE OF ACCOUNTING: Its concepts can be applied to all the job specialties. Secretaries must use accounting skills to manage the company check book and orders Facilitates the settlement of tax liability Facilitates the ascertainment of value of business.

IMPORTANCE OF ACCOUNTING: Auditors have to study financial statements to evaluate the accuracy and integrity of the business.

Executives need to judge the success of their business using accounting statements from the past and present.

IMPORTANCE OF ACCOUNTING:

Acts as legal evidence

All business students need knowledge in accounting is because in recent years, people in the business world have been held more accountable for their financial practices.

SCOPE OF ACCOUNTING:
Accounting is beneficial not only for the people in the organization, but for outsiders also.

We get an idea of the scope of accounting when we see the exhaustive list of the users of accounting.

SCOPE OF ACCOUNTING:
Further, scope of accounting can be attributed to the branches of accounting like cost accounting, financial accounting, management accounting and social responsibility accounting.

MANAGEMENT ACCOUNTING OR ACCOUNTING OF MANAGERS It measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.