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CHAPTER 1 Accounting Principles and Concepts Meaning and Scope of Accounting Accounting is the language of business. The main objectives of Accounting. Define accounting and trace the origin and growth of accounting. (b) Distinguish between book-keeping and accounting. (c) Explain the nature and objectives of. Objective: The present lesson explains the meaning, nature, scope and limitations management accounting and its difference with financial accounting .

Meaning And Scope Of Accounting Pdf

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For management to make decisions about the future of the firm they require relevant financial information. This is where accounting steps in. It is the language of. the accounting beforehand. The objectives and the function of accounting will be later discussed in depth. of Accounting. Meaning and Scope of Accounting. Scope of Accounting is wide and extend in business, Government, Financial In fact, where financial transactions occur there is the importance of Accounting.

B Com : Meaning, Scope & Objectives - Introduction to Cost Accounting, Cost Accounting

Nature and Scope of Financial Accounting: The nature and scope. An event whether internal or external is a happening of a consequence to an entity e. Classifying: It is the process of posting of entries in the ledger so that transaction of similar type are accumulated at one place. Its purpose is to identify the financial strengths and weakness of the enterprise.

It provides the basis for interpretation. Interpreting: Interpreting is the last stage of accounting process.

It is concerned with explaining the meaning and significance of the relationship established by the analysis. In fact, interpretation is the main function of accountant in the present condition since the routine work of recording, classifying and summarizing business transaction business transaction can be easily handled by the electronic devices like computers. Communicating: It is concerned with the transmission of summarized, analyzed and interpreted information to the user to enable them to make reasoned decisions.

See all related question in financial accounting. See all related question in B.

Accounting Concepts Accounting concepts mean and include necessary assumptions or postulates or ideas which are used to accounting practice and preparation of financial statements. Accounting Conventions Accounting Convention implies that those customs, methods and practices to be followed as a guideline for preparation of accounting statements.

The accounting conventions can be classified as follows: 1 Convention of Disclosure. Accounting Concepts 1 Entity Concept: Separate entity concept implies that business unit or a company is a body corporate and having a separate legal entity distinct from its proprietors.

The proprietors or members are not liable for the acts of the company. But in the case of the partnership business or sole trader business no separate legal entity from its proprietors. Here proprietors or members are liable for the acts of the firm.

As per the separate entity concept of accounting it applies to all forms of business to determine the scope of what is to be recorded or what is to be excluded from the business books. For example, if the proprietor of the business invests Rs. On withdrawal of any amount it will be debited in cash account and credited in proprietor's capital account.

Importance of Accounting

In conclusion, this separate entity concept applies much larger in body corporate sectors than sole traders and partnership firms.

The dual aspect concept is the basis of the double entry book keeping. Accordingly for every debit there is an equal and corresponding credit.

On the other hand, the term liability denotes the funds provided by the creditors and debenture holders against the assets of the business. The term assets represents the resources owned by the business.

Scope of Accounting in Business and Personal Life

For example, Mr. Thomas Starts business with cash of Rs.

In other words, the business acquires assets of Rs. Being a business in continuous affairs for an indefinite period of time, the proprietors, the shareholders and outsiders want to know the financial position of the concern, periodically. Thus, the accounting period is normally adopted for one year. At the end of the each accounting period an income statement and balance sheet are prepared. This concept is simply intended for a periodical ascertainment and reporting the true and fair financial position of the concern as a whole.

This concept assumes that business concern will continue for a long period to exit. In other w.

This assumption implies that while valuing the assets of the business on the basis of productivity and not on the basis of their realizable value or the present market value, at cost less depreciation till date for the purpose of balance sheet. It is useful in valuation of assets and liabilities, depreciation of fixed assets and treatment of prepaid expenses.

Financial Accounting: Meaning, Nature, and Scope!

And this cost is the basis for subsequent accounting for the asset. For accounting purpose the market value of assets are not taken into account either for valuation or charging depreciation of such assets.

Cost Concept has the advantage of bringing objectivity in the preparation and presentation of financial statements. In the absence of cost concept, figures shown in accounting records would be subjective and questionable.

But due to inflationary tendencies, the preparation of financial statements on the basis of cost concept has become irrelevant for judging the true financial position of the business.

This concept excludes those transactions or events which cannot be expressed in terms of money. For example, factors such as the skill of the supervisor, product policies, planning, employer-employee relationship cannot be recorded in accounts in spite of their importance to the business.

This makes the financial statements incomplete. The chief aim of the business concern is to ascertain the profit periodically. To measure the profit for a particular period it is essential to match accurately the costs associated with the revenue.

Thus, matching of costs and revenues related to a particular period is called as Matching Concept.

According to this concept, revenue is the gross inflow of cash, receivables or other considerations arising in the course of an enterprise from the sale of goods or rendering of services from the holding of assets.

If no sale takes place, no revenue is considered. However, there are certain exceptions to this concept.

According to this concept, revenue recognition depends on its realization and not accrual receipt.

Cost Accounting - Notes & Videos

Likewise cost are recognized when they are incurred and not when paid. The accrual concept ensures that the profit or loss shown is on the basis of full fact relating to all expenses and incomes.

In fact, due to inflationary pressures, the value of rupee will be declining. Under this situations financial statements are prepared on the basis of historical costs not considering the declining value of rupee. Similarly depreciation is also charged on the basis of cost price. Thus, this concept results in underestimation of depreciation and overestimation of assets in the balance sheet and hence will not reflect the true position of the business.Give examples of agreements that are considered opposed to public policy.

They also maintain their accounts of income and expenditure.

The nature and scope. All financial activities of individuals, business concerns, non-trading concerns, government, semi-government organizations, doctors, advocates, accountants and other professionals come under the scope of Accounting.

MCQ of Ch 1.

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