4. Role of Accounting

ROLE OF ACCOUNTING

For centuries, the role of accounting has been changing with the changes in economic development and increasing societal demands.

1.  It describes and analyses a mass of data of an enterprise through measurement, classification and summarization, and reduces those date into reports and statements, which show the financial condition and results of operations of that enterprise. Hence, it is regarded as a language of business.
2. It also performs the service activity by providing quantitative financial information that helps the users in various ways.
3. Accounting as an information system collects and communicates economic information about an enterprise to a wide variety of interested parties. However, accounting information relates to the past transactions and is quantitative and financial in nature, it does not provide qualitative and non-financial information. These limitations of accounting must be kept in view while making use of the accounting information.

 

MEANING AND DEFINITION OF BOOKKEEPING

• Definition: “The art keeping permanent record of business transactions is book keeping.”
• J. R. Batliboi: “book-keeping is an art of recording business dealings in a set of books”.
• R. N. Carter: “Book-keeping is the science and art of correctly recording in the books

          of accounts, all those business transactions that results in transfer of money’s worth”.

FEATURES OF BOOK-KEEPING

• It is the process of recording business transactions.
• Monetary transactions are only recorded.
• Recording is made in given set of books of accounts.
• Record is prepared for a specific period but presented for future references.
• It is an art of recording business transactions scientifically.

DIFFERENCE B/W BOOK-KEEPING AND ACCOUNTING

BOOK-KEEPING

• The object of book-keeping is to prepare original books of accounts, trial balance and to maintain systematic record of financial results.

 *  It has a limited scope .

• Level of work is restricted to clerical work

ACCOUNTING

• The object of accounting is to record, classify, summarize, analyze, and interpret the business transactions and ascertain financial results and to communicate to various parties.
• It has a wider scope.
• It is concerned with all levels of Management.

ADVANTAGES OF ACCOUNTING

• Replacement of memory
• Evidence court
• Assessment of taxation liability
• Comparative study
• Sale of business
• Assistance to the insolvent person
• Assistance to various parties
• Facilities in raising loans
• Information regarding financial position.

LIMITATIONS OF ACCOUNTING

• Records only monetary transactions.
• Unsuitable for forecasting.
• No realistic information
• Personal bias of the accountant affects the accounting statements .
• Incomplete information.
• Profit no real test of managerial performance .
• Historical in nature.
• Window dressing in balance sheet.