Nature and scope of accounting Essay

As an introduction to the course in be, it may be useful to define the following terms Accounts These are the monetary records in the organization. Every task transaction, or write up entity, may be delineate in an account by itself, e.g. wages, telephone expense, motor vehicle, Cash at bank, Investment Book-keeping This is the record of the financial minutes of a crease in a placementatic manner, so that relevant financial data may be extracted when needed. accountancy This is a more comprehensive step than book-keeping. It involves the classifying, recording, compiling, describe and interlingual rendition the financial activities in the organization. This allows the users of the schooling to make in figure outed judgement, proviso and decision regarding the organization. Accountancy This is the procedure or the system that must be followed when recording, reporting, and interpreting the financial activities of the organization. It involves the set of principle s or rules that must be ascertained in run to achieve an objective public opinion of the accounting results.account in the fullest sense, is in that locationfore the interactive and integrated process of reviewing, forecasting, planning, recording, classifying, reporting , and interpreting the financial activities in the organization. This allows the custodians to make informed judgments and decisions pertaining to the performance and financial maculation of the organization. It excessively facilitate those who may have a vested amuse in the telephone circuit to assess their relationship andexpectations from the operations.To this end accounting information should be Relevant to the users so as to influence their ability to make informed decision Reliable free from material error and bias, giving a truthful representation of the firm Comparable presented in a agreeable manner so at to allow for reasonable comparisons Understandable uncomplicated, structured, and intel ligibly presented. Timely provided when needed, or on time as required by police Unqualified non subjected to unnecessary modifications or restrictionsUSES OF ACCOUNTING readingThe accounting system in the organization generates a wealth of financial data that may be utilized by several interest groups. These include Management Those who are entrusted with the day to day operations of the moving in must non save make informed decisions, but also set operating standards and then review the results. In sound out to do this, they must use the accounting system as their base. Owners The accounting system enables those who have an invested interest in the business to make an overview of the performance, as intimately to determine the results of their investment. Investors Others who have contributed to the business, either by way of financial assistance, go forth of goods, or whatsoever former(a) form of involvement, need to analyse the levels of positiveness and risk involved in the business Government Assessment of the business operations by the government may be done for valuate purposes, or to determine nationalincome, or other statistical calculation. transaction Union Collective bargaining on the behalf of employees by the trade pith can only be done beneficially if the union has a clear understanding of the financial position of the firm.DIVISIONS OF ACCOUNTINGIn order to satisfy the users of the accounting information, the accounting process may be sub-divided into roomy categories apostrophize and Management Accounting This aspect of accounting is concerned with the release of information to the internal users, i,e, to the managers and the decision makers. It includes such(prenominal) activities as product costing, budgeting, systems operations, and accounting methods.This allow the users to formulate plans, set policies, make decisions, and control the operations in the organization. fiscal Accounting This is the maintenance of the accounting records in a organized manner and the preparation of summarized statements regarding the results of the business. This is of use primarily to parties external to the business, and gives an indication of the level of profitability and financial position of the business. Special Reports nearly business operations may be financed or regulated by a bring up organization. These operations must assemble and submit progressive reports to the regulatory body, indicating any factor that may have impacted on the results of its operations.These regulatory bodies include development banks, cooperative societies, venture capital assistance organizations, industry think organizations, and government agencies Annual Return Most firms must submit assorted types of tax orother statutory returns. These include NIS, NHT, HEART Fund, Income tax, gross revenue Tax ( GCT), Property Tax. Compliance to these is mandatory, although it is usually a complex procedure. Some organizat ions may engage the services of an attorney who specializes in business law or taxation.USES OF ACCOUNTING DATAManagementCost & Management AccountingRegulatory Bodies StatutoryAgenciesThe Special Reports Accounting Annual Returns ProcessFinancial Accounting (Certified By Public Accounting Auditor)Govt Trade Union Shareholders Investors Creditors normal PublicThere are several areas of difference between financial and steering accounting. Among these areAREASFINANCIALMANAGEMENTMain UsersExternal parties, e.g. investorsCreditors, trade union, govtInternal parties, e.g. managers, ownersTime OrientationReview of the pastForecast of the futureAccessAvailable to any partyAvailable to insiders onlyRestrictionsPresentationFormatsStandard financial StatementsWhatever format most suitable hear of the Organization Condensed view of the organization as a Detailed view of segments or activitieswholeRegulatoryRegulated by ruling of bodiesNo significant regulatory Restrictionssuch as IFRS, ICAJ, as well asRestrictionsthe Companies ActPurposeInformation disclosureDecision making and controlCONCEPTS OF ACCOUNTING trusted fundamental concepts provide a rule or framework for the recording and reporting of business transactions. These may also be termed as principles, assumptions, or standards. Among them are The Accounting or Business Entity thought Each business enterprise should be regarded as a separate and distinct building block from the other economic or personal affairs of the owners. Thus the information compiled by the business unit should only relate to the activities of that enterprise.The Historical Cost plan Resources should be maintained in their accounts at their original cost, non at the periodically revised or market value. Adjustments to the cost, e.g. depreciation, should therefore be shown in a separate account. The accumulative effect of these accounts may be determined when the balance sheet is macrocosm prepared.The Going Concern innovation It is a ssumed that the business unit ordain continue for a tenacious period during which time it will be able to fulfil its objectives. Thus, stave liquidated values are not shown when preparing the balance sheet. This assumption would not ease up if the firms continued existence can not be established by fact, e.g. If faced with a legal injunction, anticipating liquidation, on the finis of a contract, or in the event of a buyout or detractover.The coin Measurement Concept Accounting transactions and the summary of their results can only be measured in monetary units. Thus, those activities or situations that are not measurable in a monetary sense would not be reflected in the accounts. These include the firms industrial relations, management styles, or industry position. The net value of these situations, however, may be classified as goodwill when the firm is cosmos re- valued, or being sold as a going concern.The Accrual Concept Revenue and expenses must be accounted for during the period when they occurred, and not necessarily when they were honoured. Thus, income is calculated from revenue and expenses incurred, not from those real paid for.The Dual Aspects Concept There are two aspects to any accounting transaction, one shows the gains realised and the other represents the claims that may be make against these gains. From this concept comes the double entry principle, i.e. for every debit (Dr) entry there must be a corresponding credit (Cr) entry.The Realisation Concept Income is regarded as being earned at the point when the legal property, or the claim, in goods has passed from the seller to the buyer. This may be different from the point when the order was received, the delivery was made, or payment completed. This, however, is determined by the terms of contract.The physicalness Concept On-going accounts are only maintained for those items or activities that by themselves will make a significant impact onthe business. These are called assets or liabilities. Immaterial or complementary items or activities are written moody as expense or revenue at the end of to each one accounting period.The Prudence Concept Accounting systems should allow for the reporting of the negligible value of income. Thus, total expenses include non-cash items such as depreciation, bad debts, and other provisions.The Substance Over Form Concept The benefits from, or material magnetic core of a resource should take precedence over the legal form of ownership. Thus, the firm may be in possession of an asset that is being used in the business but which has not yet being paid for. For example, an equipment may have been bought on hire purchase or acquired by way of a lease, and as such the asset does not legally belong to the firm until it is paid for. However, the material substance of the equipment must be shown in the books, and this takes precedence over the legal form in it.The Time Interval or Periodicity Concept The firm should prepare a set of final accounts in order to take a reading of its performance and financial standing from time to time. This is required although the business is regarded as a going concern. This periodic reading of the business allows management to exercise informed assessment and control over the affairs of the business.The Full-Disclosure Concept Although the financial statements are concerned with the last accounting period, it should also take into consideration any future events that may have an impact on the firms financial position. Thus a disclosure should be made for eventualities such as a pending lawsuit, on-going negotiations for sales, disposal, acquisition or take-over, or changes in the accounting methods being used. These disclosures are usually listed as explanatory footnotes.The Objectivity Concept The accounting transactions recorded in the firms books should be supported by objective enjoin or by a basis of origin in fact. This includes such documentation as sales invoices, payment vouchers,cash receipts and so forth Thus there should be a basis by which the transactions can be verified. This is usually required whenever an audit is being done.The accordance Concept The methods that are used in the recoding and reporting of accounting transactions should be unchanged over the course of the business, unless it is governed by more or less new rule or mode of operations. Changes result in a distortion of profit, thus objective comparison or analysis would not be allowed.