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Introduction to accounting

 

Q. Define book keeping.  What are its objectives?

Ans: Book keeping is an activity concerned with the recording of financial data relating to business operation in a significant and orderly manner.

According to the R.N carton:- "Book – keeping is the science and arts of correctly recording in the book of accounts all those business transactions that result in the transfer of money or moneys worth ".

                "North coot” has defined it as "Book – keeping is the art of recording in the books of accounts the monitory aspects to commercial or financial transaction ".

                Thus we can say that it is an art of recording business transaction in a systematic manner in the book of business.

 

Objectives of Book- keeping: A businessman record the transaction in a set of book in order to ascertain the following objects:-

                              i.      To have a permanent records of each transaction of the business.

                            ii.      To show the financial effect on the entity of each transaction recorded.

                           iii.      To know the financial position of the business on a particular data.

                          iv.      To disclose factors responsible for earning profit or suffering loss in a given period.

                            v.      Determination of the tax liability of the business.

                          vi.      For prevention of frauds and errors.

                         vii.      Protection of assets.           

 

Q. Define accounting. What are its objectives?

Ans: - Accounting is the analysis and interpretation of book-keeping records. It includes not only maintains of accounting records but also the preparation of financial and economic information. Which involves the measurement of transaction and other events pertaining to a business?

                "Accounting system is a measure of collecting summarizing, analyzing and reporting in monetary terms the information of the business”.

                According to the American institute of certified public accounts” The arts of recordings, classifying and summarizing in a significant manner and in terms of money transaction and events which in parts, at least of a financial charter and interpreting the result there of”.

 

The mean objectives of accounting are as follow:-

                              i.      To keep systematic and authentic records: - The accounting provides as authentic and permanent records of all the financial transaction of a business.

                            ii.      To protect business properties:- It keep a full records of all assets and liabilities and provides information to the proprietor as regards the utilization and preservation of funds.

                           iii.      To determine tax liability: - Accounting supplies some important and relevant information on the basis of which tax liability can be discharged.

                          iv.      To ascertain the apparitional profit or loss: - Accounting helps in ascertaining the net profit or loss sufferecl on account of carrying the business.

                            v.      To ascertain the financial position of business: - the profit and loss account gives the amount of profit or loss made by the business during a particular period.

 

Q. What are the advantages of Accounting?

Ans: -  The main advantages of accounting are mentioned below:

                              i.      Accounting information is used by the management in taking various menageries at decision.

                            ii.      It shows the financial position of business on a particular data.

                           iii.      Accounting data are accepted by the tax authorities as authentic and reliable. Hence they can be used as the basis for discharging tax liabilities.

                          iv.      Accounting supplies financial data which are accepted by the insurance company as reliable figure for settlement of insurance claim.

 

Q. what are the limitation of accounting?

Ans: - Following are the limitations of accounting:

                              i.      Records transaction measurable in monitory term:-  According to records only those transaction which can be measured in monetary terms. There may be certain important non-monitory transaction but are not recorded.

                            ii.      Permits alternative treatment: - The similar treated with different alternative approach or method and as a consequent correct result may not be attained.

                           iii.      Effect of price level changes not considered: - Accounting transaction is recorded at cash in the book .The effect of price level changes is not brought into the book .It lead to the difficulties in.

                          iv.      Personal bias of accountant affect the accounting statement:- Accounting statement are influenced by the personal judgment of the accountant. He may select any methods of depreciation, valuation of stock etc. Such judgment it based on antiquity and compliancy of the accountant with definitely affects the preparation of accounting statement.

 

Q. How book- keeping differ from accounting?

Ans:-The difference between Book – keeping and accounting summarized below:-

                              i.      Objective: - The objectives of book –keeping is too limited up to recording of business transaction. Where as the object of accounting are not only maintaining business records but also recpiding income, depiction of financial position and communication of business result.

                            ii.      Function: - The function of book – keeping is to record business transaction. The function of accounting is the recording, classifying, summarizing, interpreting business transaction and communicating result.

                           iii.      Basis: - Business transaction vouchers and other supporting documents are the basis of book – keeping for recording. Where as book - keeping serves as the basic for accounting information.

                          iv.      Nature: - Book – keeping is mostly of derical nature. Accounting is comprehensive in nature and requires specialized knowledge.

                            v.      Usefulness: - Book keeping is not of much help to the management for their decision making. Accounting helps management in forming and executing management policy.

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