Accounts Assignment

Q 1. What is Accounts and state its objectives. A1. Accounting is the art of recording, classifying, summarizing in terms of monetary transactions and events of a financial character and interpreting the results thereof. The objectives of accounts are:1. To keep systematic records. Accounting is the language in which most of the business transactions (financial) and events are expressed. Its objective is to keep a systematic record of these financial statements. It embraces proper recording of transactions classified under appropriate and summarized into financial statements. In the absence of accounting there would have been terrific burden on human memory which in most cases would have been impossible to bear.

2. To protect business properties. Accounting maintains proper records of various assets and thus enables the management to exercise proper control over them with the help of following information regarding them: (a) What is the position of inventories? (b) How much money is owed by customers? (c) How much money is to be paid to creditors. 3. To ascertain the operational profit or loss. Another objective of accounting is to ascertain whether during the period, the firm earned a profit or loss. If the amount of revenue for the period is more than the expenditure incurred in earning that revenue, there is said to be profit. For this purpose, a Trading Profit and Loss Account are prepared.

4. To ascertain the financial position of the business. For an organization, it is not adequate to only to ascertain the profit or loss; it is also necessary to know the financial health of the firm. The business must know about its financial position, i.e., where he stands what he owes and what he owns?

5. To facilitate rational decisioning. The management often requires financial information for decision making, effective control, budgeting and forecasting. Accounting provides financial information to assist the management in discharging this function. Q2. Explain the merits and demerits of Accounting. A2. The merits of accounting are:1. Replaces memory. It is not possible at all to do any business by just remembering the business transactions which have grown in size and complexity. Transactions, therefore, must be recorded early in the books of accounts so that necessary information about them is available. 2. Evidence of transactions. Systematically recorded accounting information can be produced as evidence in court of law. 3. Useful in settling tax liabilities. Income tax and Sales tax authorities could be convinced about the taxable income or sales, as the case may be, with the help of written records. 4. Useful for making comparisons. A systematic record will enable the organization to compare one years results with those of other years and locate significant factors leading to change, if any. 5. Helpful to judge efficiency of the organization. Accounting information when recorded properly can be used to compare the results and judge the efficiency of the organization. and sales, as the case may be, with the help of written records.

Demerits of Accounting:1. It ignores non monetary transactions. Non monetary events or transactions, however important they may be, are completely omitted. For ex- if any businessman lost any of his relatives and due to that he had a net loss of 50000/- in that month. Then accounts will record that he had a loss of rest 50000/- but why he had that loss is never recorded in accounting.

2. It requires specialized accounting skills. Not everyone can prepare the accounts of a company. Special knowledge is required to prepare them without which the accounts cant be prepared. 3. Window dressing. The word window dressing means manipulation of accounts in a way so as to conceal vital facts and present the financial statements a way to show a better position than what it actually is. Q3. Distinguish between Financial and Management Accounting.

BASIS

FINANCIAL ACCOUNTING

MANAGEMENT ACCOUNTING

OBJECTIVES

IT IS DESIGNED TO SUPPLY INFORMATION IN THE FORM OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET TO THE EXTERNAL PARTIES LIKE BANKS, SHAREHOLDERS ETC.

IT IS DESIGNED PRINCIPALY FOR INTERNAL USE OF THE MANAGEMENT.

DATA USED

IT IS CONCERNED WITH MONITORY RECORDS OF THE PAST EVENTS.

IT IS THE ACCOUNTING FOR THE FUTURE THEREFORE ITS SUPPLIES DATA BOTH FOR PRESENT AND FUTURE DULY ANALYSED AND IN DETAIL. MANAGEMENT ACCOUNTING IS EQUALLY INTRUSTED IN NON MONITORY ECONOMIC EVENTS.

MONITORY MEASURMENTS

IN THIS ACCOUNTING ONLY EVENTS OF MONITORY NATURE ARE RECORDED.

NATURE

IT IS OBJECTIVE.

IT IS SUBJECTIVE.

LEGAL COMPULSION

FINANCIAL ACCOUNTING HAS BECOME MORE OR LESS COMPULSARY BECAUSE OF LEGAL PROVISIONS. THE PERIOD OF REPORTING IS LONGER USUALLY HALF YEARLY OR YEARLY.

IT IS FREE TO BE INSTALLED BY THE MANAGEMENT.

PERIODICITY OF REPORTING

MANAGEMENT ACCOUNTING IS PREPARED ON SHORT INTERVALS AS PER THE REQUIREMENT OF THE MANAGEMENT.

Rahul Berwa Roll no.17 Morning M(1)