2. Accounting is often referred to as the
language of business.
The primary aim or purpose of accounting is
to serve as a means of communication.
It is used to communicate financial and
other information to people, organizations,
governments, etc., about various aspects of
business and non-business enterprises.
3. BUSINESS ENTERPRISES use accounting for their day-to-
day activities and to report the results of these activities to
their owners, creditors, employees and governmental
agencies.
SHAREHOLDERS must have financial information in order to
measure management’s performance and to evaluate their
own investments.
POTENTIAL INVESTORS need financial data in order to
compare prospective investments.
CREDITORS must consider the financial strength of business
before granting loans.
Many LAWS require that extensive information be reported to
various government departments or agencies like income tax,
sales tax, etc.
4. ACCOUNTING AS A SYSTEM
The term ‘system’ is well-recognized. A system is a
set of elements which operate together to attain a
goal. The following are examples of some systems
and are analyzed in this manner:-
SYSTEM ELEMENTS BASIC GOALS
College teachers, students, library,
office
Education
Hospital doctors, medicines,
equipments, building
Help patients
Police men, equipment,
communication network,
building
Crime control
6. While accounting is many things to many people, the
real nature of accounting is described as:-
I. An intellectual discipline
II. A profession
III. A social force
IV. A tool of social welfare
V. An aid or help to resource management
Now let us explain these points briefly as follows:
7. An intelligent discipline: The commonly recognized
intellectual disciplines are physics, chemistry, mathematics,
economics and so on. These are concerned with
measurements and communication of information.
We have noted that accounting is also based on
measurements and is an information system. Thus, when it
is combined with other disciplines or subjects, it becomes
an intellectual discipline as it becomes more useful than
when it stands alone.
A profession: The development of accounting as a
profession is relatively new. The introduction of joint stock
company form of business organisation created the need for
an independent audit to ensure that the financial records
prepared by the management were reliable. In fact this
audit function also known as ‘attest function’ was mainly
responsible for development of accounting as a profession.
8. A social force: The expansion of large scale modern
business has been possible only with the help of adequate
financial information system. The separation of ownership
and management in joint stock company form of business
organisation is possible only if reliable financial information
is supplied to owners from time to time. In fact accounting
facilitates ownership by remote control.
A tool of social force: The social welfare concept of
accounting is related to the effect of financial information on
all individuals making the society. Accounting information is
used by various groups of individuals like investors,
creditors, government, etc.
9. Aid in resource management: The accounting is
generally related to commercial or profit making
activities. However, in practice we find that
individuals in private and public enterprises engage
in transactions which may be recorded, classified
and summarized but with no profit motive.
10.
11. BASES OF
DIFFERENCE
ACCOUNTING ACCOUNTANCY
1. Subject of
study
It is simply the science and art
of recording, classifying,
summarizing and interpreting
business transactions as per
principles of accountancy.
It is a branch of knowledge or
subject of study consisting of
GAAPS used in recording,
classifying, summarizing and
interpreting financial
transactions.
2. Scope It is one of the branches of
accountancy.
It is the basic subject which
includes the entire systems of
theory and practice of
accountancy work like
accounting.
3. Nature It is a practical work. It is a theoretical study.
4. Art of science It is an art and science. It with its principles is
definitely a science.
5. Process It is the process of production. It may be regarded as a
technique of production.