Accounting vs. Book-keepingBook-keeping concerns itself with all the recording (properly and in a group of publications) of these trades which result from the transfer of cash or money’s value. Accounting is comprehensive in outlook. It goes to analyzing accounting data, summarizing, demonstrating and classifying .
()Accounting vs. Accountancy
()Body of understanding (comprising principles, postulates, assumptions, conferences, theories and principles) Assessing the science of documenting classifying and analyzing monetary transactions is bookkeeping. Whereas the practice and art of the science of bookkeeping is known as as accountancy.To fulfill the growing demands made on bookkeeping by various interested parties (for example, owners, administration, lenders, taxation governments etc.) that the several branches have become existence. Financial AccountingThe objective of financial accounting will be to determine the outcome (gain or loss) of company operations throughout the special period and also to say the fiscal standing (Balance Sheet) according to a date in the close of the period.
The object of cost accounting is to learn the price of goods produced or services rendered by means of a business enterprise. In addition, it assists the business in controlling the costs by indicating avoidable losses and wastes.Management AccountingThe object of management accounting is to supply relevant information at appropriate time to the management to enable it to take decision and effect control.In this internet primer, we’re concerned only with financial accounting. By recording the transactions in a manner in accordance with a set of principles, the objects of accounting as can be achieved. Analyzed the information needs to be classified and presented in a way in which financial position and business results can be ascertained.
Uses of Accounting
(1) How good or bad is the financial state of the organization?
(2) Has the business activity caused a profit or loss?
(3) How well the different departments of the business have performed previously?
(4) Which activities or products have been profitable?
(5) Out of the present products that ought to be discontinued and the creation of which commodities should be raised.
(6) Whether to obtain a component from the sector or to manufacture the exact same?
(7) Whether the expense of production is reasonable or excessive?
(8) What has been the effect of present policies on the profitability of the company?
(9) What are the likely outcomes of new policy decisions on future earning capacity of the business enterprise?
(10) In the light of past performance of the business how it should plan for future to ensure desired outcomes ?
Above mentioned are few examples of the sorts of questions faced by the users of accounting information. These are able to be answered with the support of necessary and suitable information given by accounting.
Besides, accounting is also beneficial in these respects :–LRB-**)
(1) Increased volume of business leads to many transactions and no businessman can remember everything. Accounting records obviate the necessity of a variety of transactions.
(2) Accounting record, prepared on the basis of uniform practices, will allow a company to compare results of one period with a different period.
(3) Taxation authorities (both income tax and sales tax) will likely trust the facts in the set of accounting books if maintained according to generally accepted accounting principles.
(4) Cocooning records, backed up by proper and authenticated vouchers are good evidence in a court of law.
(5) If a business is to be sold as a going concern then the values of unique assets as shown by the balance sheet aids in bargaining proper price for the organization.
Limitations of Financial Accounting
Following are the limitations:-LRB-**)
Financial accounting permits alternative treatmentsAccounting is based on concepts and it follows ” generally accepted principles” but there exist more than 1 principle for the treatment of any 1 item. Treatments are permitted by this with. By way of instance, the closing stock of a company could be valued by anyone of these methods: FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc., but the outcomes aren’t comparable.
Fiscal accounting doesn’t offer timely advice
This isn’t a limit when high powered software program such as HiTech Financial Accenting are utilized to keep parallel and online accounts in which the balance sheet has been made available almost instantaneously. Manual accounting does have this shortcoming.
Financial accounting was made to supply information in the shape of statements (Balance Sheet and Profit and Loss Account) for a period normally 1 year. Therefore that the info is of interest and only ‘post-mortem’ analysis of the past can be run. The company demands information to permit the management to plan and take action. By way of instance, if a business has budgeted that during the present year sales should be $ 12,00,000 then it requires information whether the sales in the first month of the year amounted to $ 10,00,000 or less or more?
Traditionally, financial accounting isn’t supposed to supply information at shorter interval less than 1 year. With the introduction of computerized accounting a software like HiTech Financial Accounting displays profit and loss account and balance sheet to overcome this limitation. Financial accounting is influenced by judgments’Convention of objectivity’ except to record events that were certain estimates need to be made which necessitates judgment. It is tricky to expect accuracy in estimates that are future and objectivity suffers. By way of instance, so as to ascertain the total amount of depreciation to be charged for fixed asset’s usage it’s required estimation and the income by accounting disclosed isn’t authoritative but ‘approximation’.
Financial accounting ignores important non-monetary information
Financial accounting doesn’t think about those transactions of non- monetary in nature. By way of instance, degree of competition faced by the company, technical innovations possessed by the company, loyalty and efficiency of the employees; changes in the value of money etc. are the essential matters in which management of the company is extremely interested but accounting isn’t tailored to take note of such matters. Any user of information is deprived. In modern times a accounting software with CRM and MIS can be useful to overcome this limitation.
Financial Accounting does not offer in depth analysis
The information supplied by the financial accounting is in reality aggregates of the financial transactions during the course of the year. Needless to say, it enables to study the outcomes of the business the info is required concerning revenue the price and profit of each item but accounting doesn’t offer detailed information product- . By way of instance, if business has earned a complete profit of say, $ 5,00,000 during the accounting year and it sells three products namely petrol. Oil and diesel and wishes to know profit earned by every product accounting isn’t very likely unless he uses a computerized accounting system capable of handling complex queries to help him. Reports in a computer accounting software such as HiTech Financial Accounting which are explained with reports according to need and graphs overcome this limitation.
Financial Accounting does not disclose the current value of the business
In financial accounting the place of the business as on a specific date is shown by means of a statement known as ‘Balance Sheet’. In Balance Sheet the assets are shown on the grounds of “Continuing Entity Concept. Thus it’s presumed that business will continue to exist indefinitely and has lifethe asset values are ‘currently going concern values.’ The ‘realized value’ of each asset by studying the balance sheet if can’t be known.