FINANCIAL ACCOUNTING - PART 02

 

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FINANCIAL ACCOUNTING

PART 02

 

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FINANCIAL ACCOUNTING 

 

According to the American Institute of Certified public Accountants (AICPA). “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 result there of. 

 

Objectives / functions of accounting
 

(i) Recording : 

 

It is concerned with the recording of financial transactions in an orderly manner, soon after their occurrence In the proper books of accounts. 

 

(ii) Classifying : 

 

It Is concerned with the systematic analysis of the recorded data so as to accumulate the transactions of similar type at one place. This function is performed by maintaining the ledger in which different accounts are opened to which related transactions are posted. 

 

(iii) Summarizing : 

 

It is concerned with the preparation and presentation of the classified data in a manner useful to the users. This function involves the preparation of Income Statement and position statement.

 

(iv) Analysis and Interpreting : 

 

The accountants should interpret the statements in a manner useful to action. The accountant should explain not only what has happened but also 

 

(a) why it happened, and 

 

(b) what is likely to happen under specified conditions. 

 

(v) Communication: 

 

Accounting information has to be communicated in a proper form to the interest persons 

 

(vi) Elimination of errors and frauds 

 

On recording the transactions by following the double entry system error and misappropriation of funds can be reduced and even eliminated.

 

 

Advantages of accounting :

 
• Helps in ascertaining financial position of a company
 

• Systematic record
 

• Provides information to interested parties
 

• Helps in decision making
 

• Legal evidence
 

• Replacement of memory

 

 

Disadvantages of accounting :

 
• Non-monetary dealings cannot be recorded
 

• Post-mortem survey
 

• Effect of price level changes not considered
 

• Assumptions in accounting
 

• Difference in principle and methods followed 

 

 

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