Private companies, on the other hand, who aren't issuing public statements, can use their own accounting systems. The financial statements also show the inflows and outflows of cash in the different activities of the business operating, investing, and financing activities. Not only this, the language of accounting also expresses the financial stability, strength of the Capital Structure and the inner worth or the real net worth of the business. Cost saving could be a temporary affair and may be at the cost of quality. The selection of accounting principles to use during the course of financial accounting depends on the regulatory and reporting requirements the business faces. Solvency refers to the entity's ability to pay obligations when they become due.
The resulting amount is called net income. These statements are vital for all stakeholders in determining the financial position of a company. Both of the above definitions and the very nature of accounting suggest its basic purpose — to provide information needed by users in making economic decisions. Cost accounting deals with manufacturing concerns. Following legal bindings and prohibition As all kinds of business organizations have to abide by some legal bindings and prohibitions, they are to maintain their accounts accurately. Accounting Theories point out to the scientific ways of thinking for the solution of any real world accounting problem. Of what value is accounting? Cost accounting is usually involved with management accounting.
These are enumerated as follows: 1. The nature and amounts of actual losses. Accounting records tell the firm what resources were committed to what activity and what time. If a man who does not know accounting never makes accounts which will be helpful for achieving the objectives of financial accounting. Assets, liabilities and equity accounts are reported on the balance sheet. It centralizes your accounting functions so all transactions are kept in the same system, allowing for a more efficient work flow throughout your office. Surplus or deficit of revenue for a particular period of a non-trading concern can also be ascertained by preparing income and expenditure account or statement.
So, accounting, now-a-days has become complicated and complete. The main object of Accounting is to ascertain the results of the financial transactions of a business concern. In Financial Accounting the computer is invariably used in business to run the Bought or Purchase Ledger, the Sales Ledger and the Nominal Ledger. Science always consists of some generally accepted and well established principles. Depending upon the software, the accounting system requires a variety of information for different parts of the process be manually input into the system.
A single process cannot be applicable to all cases. On the other hand, government or other authorities may also ask about the financial position of a business concern for various reasons. This includes preparing a balance sheet, income statement, cash flow and notes. Whenever the organization commits any resource of monetary value either within the firm or outside the firm, a record is made. A man who does not know financial accounting will deduct all his expenses from his incomes without seeing revenue and capital expenditure. It also calculates the profits or loss of a business unit during a certain period. Generally Accepted Accounting Principles cannot be changed completely as they are widely and universally accepted but they can be reformed and remoduled to suit the needs of any changed Society or Economy.
Keeping track of your finances and accounting for them. From the above it is clear that to define accounting as such, is rather difficult. If the accountant has got sufficient knowledge of accounting theory, he can easily find these out and administer advices to the management as to the way of future protection. Helps in Motivating Employees: The management accountant by setting goals, planning the best and economical course of action and then measuring the performance tries his best to increase the effectiveness of the organisation and thereby motivate the members of the organisation. Accounting Practice is what is actually done in the way of recording and analyzing accounting activities. An example of the first situation a is the sale of goods or services. To properly match income with expenses.
A man does not anything without any sound reason. The specific amounts due to be paid to the government and their nature. Written records are always better than oral records, since written records can be used by different person for taking rational decisions and serve as evidence of transactions. Valuation of various assets and liabilities can be more or less accurately if the accountant has the knowledge of accounting theory. Investors and creditors use this information to make decisions about investing in a company or lending money to a company. Helps in the Interpretation of Financial Information 3.
The business requires timely information at frequentintervals to enable the management to plan and take correctiveaction. It's difficult to make informed business decisions without accurate financial data that helps you see where you are, where you've been and trends that may determine where you're headed. Thus it is presumed that business has relativelylonger life and will continue to exist indefinitely, hence theasset values are 'going concern values. These transactions are summarized in the preparation of financial statements, including the balance sheet, and , that record the company's operating performance over a specified period. Again on the other hand, the day-to-day accounting practices are performed by successful application of those established and generally accepted theories and principles. The purpose of financial accounting is to provide financial statements and financial reports to individuals who require them. There are different types of theories in different branches of knowledge.