- Books Name
- CA Shivali kedia Accountancy Book
- Publication
- CA Shivali kedia
- Course
- CBSE Class 11
- Subject
- Accountancy
Roles of Accounting
The keywords here are identifying measuring recording and communicating. Let us study this in a little bit of detail
1. Identifying relevant transactions
Depending on the size of the business and hundreds of transactions can take place in a single day. Not everything can be recorded in the books of account. For all these transactions the accountant has to identify those transactions which are related to the business which are monetary in nature and which will come in our books of accounts
Example: Suppose Harsh Buys a refrigerator for a home for Rs.50,000. Which is a Business Transaction.
2. Measurement
Let us take a scenario where are trader trading in stationery items is selling the items within India and is also exporting some of his items to a dealer in China. What will be the common unit what will be the measuring unit will it be rupees will it be Paisa over let be a dollar a single unit common for all transactions has to be taken into account which is not to be changed every year.
3. Recording
This is the basic (First) function of accounting for all business transactions all monetary (related to money) business transactions such as
Eg. sales purchases salaries and electricity are recorded or accounted in the books of account.
The recording is done in a book called journal which will study more in the coming chapters.
After the Accountant has recorded data the data has to be classified in a systematic manner,
similar accounts are grouped and placed in one place called a book called ledger this is the second step of recording
from journal we record the transactions all the transactions falling under the same head in an account called ledger which will study ahead in the coming chapters.
4. Communication
After the accounts has been recorded and measured analyzed the job of an accountant does it complete at this point.
Communication is concerned with transmitting the information to the end-users of financial statements so they can prepare to make decisions on the basis of books of accounts.
Why do the accountants need to communicate the results of the books of account or communicate the results of the books of accounts to the uses of financial statements who are these uses of financial statements let us understand?
There can be two kinds of uses of two financial statements. External users and internal users. People who are on the payroll (on salary) of the company are called internal uses to financial statements.
Internal users
If the company is growing, the employee’s growth is certain. The CEO the CFO vice president managers plant manager's there all internal to the organization and hence internal uses of the organization
External users
A business cannot function alone there are banks who give loans to the businesses there are creditors who give the gift credit to the businesses there is the government who keeps an eye if they are papering a taxes correctly or not the customer buys are products because he trusts us all these people are external to the organization they are dealing with the organization from the outside and external uses of financial information
Users Why do they need information?
Investors return on money invested in the business
Unions and employee groups Stability in Income, Bonus (Out of profits)
Lenders and Banks Credibility of the company
Creditor’s Continuous supply of products
Government and related Organisations Complaisance and payments of dues
Social Groups Impact on the environment
Other fields of accounting
Financial accounting refers to the preparation and interpretation of financial information and communication to the users of accounts. This is what we have understood above accounting is the basic sense
Management accounting refers to internal reporting to the management of the business. Management accountant is a very important component that helps the management make important decisions regarding the business operations
Cost accounting
Cost accountants are usually hired by companies that are dealing with manufacturing products. For any manufacturer cost of the product manufactured by him is the most important factor which decides his profits
All this tells you about the person or the data but not that they mention any quantity or numbers
Accounting has certain qualitative characteristics let us understand what qualitative characteristics are.
Accounting data should be recorded in such a way that it is very easy and understandable and useful to the person who uses that data.
For example, if I just randomly right 10 numbers it will not make any sense
But let’s say that these 10 numbers are the marks of the students in your class then it would make sense