Nature and scope of accounting Essay

As an introduction to the course in explanation body, it whitethorn be useful to rile up ones mind the following term Accounts These atomic number 18 the fiscal records in the organization. Every disdain transaction, or account entity, whitethorn be be in an account by itself, e.g. wages, forebode make out down, motor vehicle, Cash at bank, investment funds Book-keeping This is the recording of the pecuniary proceeding of a line of merchandise in a schemeatic manner, so that relevant pecuniary selective entropy whitethorn be extracted when needed. accountancy This is a more comprehensive step than book-keeping. It involves the classifying, recording, compiling, c all oerage and interpreting the financial activities in the organization. This allows the users of the in formation to make intercommunicate judgement, planning and purpose regarding the organization. Accountancy This is the procedure or the brass that moldinessiness be followed when recording , reportage, and interpreting the financial activities of the organization. It involves the set of principles or sees that essential be observed in commit to carry out an objective view of the accounting results. method of accounting in the fullest sense, is therefore the interactive and incorporate 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 finales pertaining to the functioning and financial rank of the organization. It in like manner hurry those who may have a vested s withdraw in the short letter to assess their kind andexpectations from the trading operations.To this demolition accounting information should be Relevant to the users so as to bewitch their ability to make informed conclusion Reliable free from material misplay and bias, giving a truthful government agency of the debauched Comparable presented in a consistent manner so at to allow for reasonable affinitys Understandable uncomplicated, structured, and clear presented. cartridge holderly provided when needed, or on snip as inevitable by justice Unqualified not subjected to unnecessary modifications or restrictionsUSES OF ACCOUNTING INFORMATIONThe accounting system in the organization generates a wealthiness of financial data that may be utilized by several sake groups. These embarrass centering Those who be entrusted with the daytime to day operations of the chore must not only make informed decisions, exactly also set operate standards and then review the results. In order 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 well to ensure the results of their investment. Investors Others who have contributed to the business, either by itinerary o f financial assistance, supply of goods, or all separate form of involvement, need to tumble the levels of profitability and risk involved in the business Government Assessment of the business operations by the government may be done for tax revenue purposes, or to determine nationalincome, or other statistical calculation. tidy sum Union incorporated bargaining on the behalf of employees by the apportion union hatful only be done beneficially if the union has a clear understanding of the financial dapple of the fuddled.DIVISIONS OF ACCOUNTINGIn order to execute the users of the accounting information, the accounting process may be sub-divided into broad categories Cost and heed bill This aspect of accounting is implicated with the supply of information to the internal users, i,e, to the managers and the decision makers. It includes such activities as product costing, budgeting, systems operations, and accounting methods.This allow the users to formulate plans, se t policies, make decisions, and control the operations in the organization. pecuniary be This is the maintenance of the accounting records in a methodical manner and the cookery of summarized statements regarding the results of the business. This is of use primarily to parties external to the business, and gives an meter reading of the level of profitability and financial position of the business. Special Reports Some business operations may be financed or modulate by a parent organization. These operations must prepare and submit reformist reports to the restrictive body, indicating every factor that may have stired on the results of its operations.These restrictive bodies included development banks, cooperative societies, punt capital assistance organizations, industry link organizations, and government agencies Annual Return close to trustworthys must submit various types of tax orother statutory returns. These include NIS, NHT, HEART Fund, Income tax, Sales Tax ( GCT), airscrew Tax. Compliance to these is mandatory, although it is normally a conglomerate procedure. Some organizations may engage the serve of an attorney who specializes in business jurisprudence 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 General Publicthither are several areas of difference amid financial and management accounting. Among these areAREASFINANCIALMANAGEMENT of import UsersExternal parties, e.g. investorsCreditors, trade union, govtInternal parties, e.g. managers, ownersTime OrientationReview of the pastForecast of the future dayAccessAvailable to any partyAvailable to insiders onlyRestrictionsPresentationFormatsStandard financial StatementsWhatever format most suitableView of the presidential term Condensed view of the organiz ation as a Detailed view of segments or activities undividedRegulatoryRegulated by ruling of bodiesNo significant regulatory Restrictionssuch as IFRS, ICAJ, as well asRestrictionsthe Companies operatePurposeInformation disclosureDecision making and controlCONCEPTS OF ACCOUNTING indisputable 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 supposition from each one business enterprise should be regarded as a separate and distinct building block from the other economic or own(prenominal) affairs of the owners. and then the information compiled by the business unit should only connect to the activities of that enterprise.The Historical Cost invention Resources should be maintained in their accounts at their genuine cost, not at the bimonthlyally revise or market value. Adjustments to the cost, e.g. deprec iation, should therefore be shown in a separate account. The additive effect of these accounts may be pertinacious when the vestibular sense sheet is cosmos prepared.The sacking Concern plan It is assumed that the business unit leave behind continue for a lasting period during which time it depart be able to fulfil its objectives. Thus, slowdown liquidated values are not shown when preparing the balance sheet. This assumption would not apply if the firms continued existence can not be established by fact, e.g. If faced with a jural injunction, anticipating liquidation, on the expiration of a contract, or in the event of a buyout or takeover.The bills Measurement construct 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 good will when the firm is being re- valued, or being sold as a elan out concern.The Accrual judgment Revenue and expenses must be accounted for during the period when they occurred, and not inescapably when they were honoured. Thus, income is calculated from revenue and expenses incurred, not from those genuinely pay for.The Dual Aspects Concept at that place are two aspects to every 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 pronged access 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 polar from the point when the order was received, the delivery was made, or payment completed. Thi s, however, is determined by the terms of contract.The Materiality 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 additions or liabilities. so-so(p) or complementary items or activities are written off as expense or revenue at the end of each accounting period.The Prudence Concept Accounting systems should allow for the reporting of the borderline value of income. Thus, total expenses include non-cash items such as depreciation, bad debts, and other provisions.The depicted object Over Form Concept The benefits from, or material substance of a imagery 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 read purchase or acquired by way of a lease, and as such the asset does not legally belong to t he 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 deed 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 e xplanatory footnotes.The Objectivity Concept The accounting transactions recorded in the firms books should be back up by objective evidence or by a basis of melodic phrase in fact. This includes such documentation as sales invoices, payment vouchers,cash avail etc. Thus there should be a basis by which the transactions can be verified. This is usually required whenever an audit is being done.The Consistency Concept The methods that are used in the rearrange and reporting of accounting transactions should be unchanged over the course of the business, unless it is governed by some new rule or mode of operations. Changes result in a distortion of profit, thus objective comparison or analysis would not be allowed.