Meaning and Objectives of Accounting

  • Accounting is the art of recording, classifying and summarising 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.
  • Accounting is an art as well as a science.  
  • Functions of accounting include identifying, recording, classifying, summarising, interpreting and communicating.
  • Accounting cycle starts from identification of financial transactions and ends with the preparation of financial statements.
  • Objectives of accounting include maintenance of business records, ascertaining profit or loss, ascertaining financial position, facilitating management control, providing accounting information to users etc.
  • Accounting as a source of information must be supported by vouchers and source documents.
  • Book keeping is the art of recording in the books of accounts the monetary aspect of commercial and financial transactions. Book keeping is a part of accounting. Accounting is different from book-keeping.
  • The objective of accounting is to maintain systematic record of financial transactions. The objective of book-keeping is to ascertain the net profit or loss and to show the financial position of the business.
  • Accountancy refers to a systematic knowledge of accounting concerned with the principles and techniques that are applied in accounting. Accountancy is different from accounting on the basis of scope, functions etc.
  • The changing business scenario has given rise to special branches of accounting, which cater to the changing requirements of the business.
  • The branches of accounting are financial accounting, cost accounting, management accounting, tax accounting and social responsibility accounting.
  • The purpose of cost accounting is to ascertain the cost of various products manufactured by the firm.
  • The purpose of management accounting is to take important decisions relating to funds, costs, profits, etc.
  • Users of financial statements can be categorised as internal users and external users.
  • Internal users include owners, management etc.
  • External users include Banks and financial institutions, investors and potential investors, creditors, employees and workers etc.
  • Advantages of accounting like it gives financial information about business, provides assistance to management, replaces memory, facilitates comparative study, evidence in court etc.
  • Accounting also suffers from limitations like accounting information is based on estimates; it ignores qualitative elements, affected by window dressing, etc.
  • Qualitative characteristics of accounting information are reliability, understandability, relevance and comparability.

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  • Q1

    What do you understand by 'Accountancy?'


    Accountancy refers to a systematic knowledge of accounting concerned with the principles and techniques which are applied in accounting.

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  • Q2

    What is the main object of Cost Accounting?


    The main object of cost accounting is to determine the cost of goods produced or services rendered by a business.

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  • Q3

    What is book keeping?


    It is a systematic record of all financial transactions in the books of account.

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  • Q4

    Explain 'Interpretation of the results' as the function of accounting.


    In Accounting, the results of the business are presented in such a manner that the parties interested in the business such as proprietors, managers, banks, etc., can have full information about financial position of the business.

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  • Q5

    What is the basic function of financial accounting?


    The basic function of financial accounting is to record all business transactions.

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