Nature and scope of accounting Essay

As an introduction to the route in accounting, it whitethorn be useful to lay out the following terms Accounts These be the financial records in the organization. Every transmission line transaction, or accounting entity, may be represented in an account by itself, e.g. wages, telephone expense, motor vehicle, Cash at bank, investment funds Book-keeping This is the recording of the financial transactions of a occupation in a ashesatic manner, so that pertinent financial data may be extracted when needed. story This is a more comprehensive step than book-keeping. It involves the classifying, recording, compiling, reportage and interpreting the financial activities in the organization. This allows the users of the information to make informed judgement, planning and stopping luff regarding the organization. Accountancy This is the cognitive process or the arranging that essential be followed when recording, reporting, and interpreting the financial activities of the organization. It involves the set of principles or rules that must be observed in order to achieve an objective view of the accounting results.Accounting in the fullest sense, is and then the interactive and integrated process of check outing, forecasting, planning, recording, classifying, reporting , and interpreting the financial activities in the organization. This allows the custodians to make informed judgments and decisions pertaining to the effect and financial incline of the organization. It also facilitate those who may have a vested interest in the business to assess their relationship andexpectations from the operations.To this end accounting information should be Relevant to the users so as to determine their ability to make informed decision Reliable free from material error and bias, giving a truthful representation of the regular Comparable presented in a consistent manner so at to allow for reasonable comparisons Understandable uncomplicated, structured, and clearly presented. Timely provided when needed, or on succession as undeniable by law Unqualified not subjected to unnecessary modifications or restrictionsUSES OF explanation INFORMATIONThe accounting system in the organization generates a wealth of financial data that may be utilized by several interest groups. These include Management Those who atomic number 18 entrusted with the day to day operations of the business must not totally make informed decisions, but also set operating 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 determine the results of their investment. Investors Others who have contributed to the business, all by way of financial assistance, supply of goods, or every some opposite form of involvement, need to give out the levels of profitabi lity and risk involved in the business Government Assessment of the business operations by the government may be done for tax purposes, or to determine nationalincome, or crack up statistical calculation. Trade Union Collective bargaining on the behalf of employees by the portion out union offer unless be done beneficially if the union has a clear understanding of the financial position of the firm.DIVISIONS OF accountancyIn order to satisfy the users of the accounting information, the accounting process may be sub-divided into bighearted categories Cost and Management Accounting This aspect of accounting is concerned with the supply of information to the internal users, i,e, to the managers and the decision makers. It includes such(prenominal) activities as product costing, budgeting, systems operations, and accounting methods.This allow the users to formulate plans, set policies, make decisions, and control the operations in the organization. Financial Accounting This is the maintenance of the accounting records in a methodical manner and the conceptualization of summarized statements regarding the results of the business. This is of use primarily to parties external to the business, and gives an indication of the level of profitability and financial position of the business. Special Reports near business operations may be financed or regulated by a parent organization. These operations must prepare and submit progressive reports to the regulatory body, indicating any factor that may have impacted on the results of its operations.These regulatory bodies included development banks, cooperative societies, venture capital assistance organizations, industry related to organizations, and government agencies annual Return Most firms must submit various types of tax or new(prenominal) statutory returns. These include NIS, NHT, HEART Fund, Income tax, Sales Tax ( GCT), Property Tax. Compliance to these is mandatory, although it is usually a compl ex procedure. Some organizations may engage the services of an attorney who specializes in business law or taxation.USES OF ACCOUNTING DATAManagementCost & Management AccountingRegulatory Bodies StatutoryAgenciesThe Special Reports Accounting Annual Returns ProcessFinancial Accounting (Certified By popular Accounting Auditor)Govt Trade Union Shareholders Investors Creditors General PublicThere are several areas of difference between financial and circumspection accounting. Among these areAREASFINANCIALMANAGEMENTMain UsersExternal parties, e.g. investorsCreditors, trade union, govtInternal parties, e.g. managers, ownersTime OrientationReview of the pastForecast of the futureAccessAvailable to any partyAvailable to insiders onlyRestrictionsPresentationFormatsStandard financial StatementsWhatever format most suitable look of the Organization Condensed view of the organization as a Detailed view of segments or activitieswholeRegulatoryRegulated by ruling of bodiesNo significant regula tory Restrictionssuch as IFRS, ICAJ, as well asRestrictionsthe Companies ActPurposeInformation disclosureDecision making and controlCONCEPTS OF ACCOUNTINGCertain fundamental concepts provide a rule or framework for the recording and reporting of business transactions. These may also be termed as principles, boldnesss, or standards. Among them are The Accounting or Business Entity excogitation Each business enterprise should be regarded as a separate and distinct unit from the some other economic or personal affairs of the owners. Thus the information compiled by the business unit should only relate to the activities of that enterprise.The Historical Cost Concept Resources should be maintained in their accounts at their original cost, not at the periodically revised or market value. Adjustments to the cost, e.g. depreciation, should in that locationfore be shown in a separate account. The accumulative effect of these accounts may be determined when the balance sheet is being prep ared.The Going botheration Concept It is assumed that the business unit will continue for a lasting period during which time it will be able to fulfil its objectives. Thus, interim liquidated values are not shown when preparing the balance sheet. This assumption would not apply if the firms continued existence can not be completed by fact, e.g. If faced with a legal injunction, anticipating liquidation, on the expiration of a contract, or in the result of a buyout or burgeon forthover.The Money Measurement Concept 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 goodwill when the firm is being re- valued, or being sold as a going away concern.The Accrual Concept receipts and expenses must be accounted for during the period when they occurred, and not necessarily when they were honoured. Thus, income is calculated from revenue and expenses incurred, not from those actually paying for.The Dual Aspects Concept There are two aspects to every accounting transaction, one shows the gains realised and the other represents the claims that may be made against these gains. From this concept comes the double entry principle, i.e. for every debit (Dr) entry there must be a corresponding credit (Cr) entry.The Realisation Concept Income is regarded as being take in at the point when the legal property, or the claim, in goods has passed from the seller to the buyer. This may be different from the point when the order was received, the delivery was made, or payment completed. This, 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 signi ficant impact onthe business. These are called summations or liabilities. Immaterial 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 minimum value of income. Thus, total expenses include non-cash items such as depreciation, bad debts, and other provisions.The Substance Over Form Concept The benefits from, or material substance of a resource 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 hire purchase or acquired by way of a lease, and as such the asset does not legally belong to the 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 cyclici ty 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 exercise 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 gross sales, disposal, acquisition or take-over, or changes in the accounting methods being used. These disclosures are usually listed as explanatory footnotes.The Objectivity Concept The accounting transactions recorded in the firms books should be supported by objective conclusion or by a basis of origin in fact. This includes such documentation as sales invoices, payment vouchers,cash receipts 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 recoding 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 twirl of profit, thus objective comparison or analysis would not be allowed.