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Knowledge about Accounting


“Accounting is the science of recording and classifying business transactions and events, primarily of a financial character and the art if making significant summaries, analysis and interpretations of those transactions and events and communicating the result to persons who must make decisions or for judgment”. - Smith And Ashburne


“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part atleast, of a financial character, and interpreting the results thereof” - American Institute of Certified Public Accountants


See the related post : Agricultural Income and tax
Need of Accounting-

Now a day every business men required to maintain their books of accounts to know about financial details as below regarding their business.

  • To know financial results like Profit or Loss etc.
  • To know about financial positions by preparing Balance Sheet
  • To keep the record of business transactions
  • To ascertain the amount of capital is invested in their business
  • To know about their Assets or outstanding Liabilities
  • To know the amount of Turnover/Sales
  • To know the amount of Purchases
  • To know about periodical payments like GST, Income Tax or other statutory liabilities etc.
  • To keep watch on Expenses i.e. Direct/ Indirect
  • To ascertain the ratio analysis
  • To ascertain the sale price
  • To keep watch and detect errors and frauds etc.
  • To reconcile their balances with other parties
  • To know about cash/bank balances on daily basis
  • To analysis about cash flow and fund flow


See the related post : How to Pay Taxes Online
Types of Accounting-
  • Financial Accounting-The main purpose of financial accounting is to record the business transaction in a systematic manner, to ascertain the Profit or Loss and to present the financial positions of the business by preparing Balance Sheet.
  • Cost Accounting- The main purpose of cost accounting is to ascertain the total cost and per unit cost of goods produced and services rendered by a business. It also helps us to control over cost.
  • Management Accounting- The main purpose of management accounting is to present the accounting information in such a way to assist the management in planning and controlling the operation of the business by calculating ratio analysis, budgetary control, fund flow statement and cash flow statement etc.
  • Tax Accounting- The main purpose of tax accounting is used for computing tax liability like GST, Income tax etc. on the basis of accounting.
  • Social Responsibility accounting- Every business also has a responsibility to the society. Social responsibility accounting is the process of identifying, measuring and communicating the contribution of a business to the society. The contribution of the business to the society of providing employment to under-privileged, providing financial and manpower support for public programs, environment contribution, product safety, product durability, customer satisfaction etc.
Advantages or uses of Accounting-
  • Provide complete and systematic record- Every business men have required to record their transactions on daily basis. Accounting keeps a prompt and systematic record of all the transaction and summarizes the true picture of the activities of the business.
  • Information about financial results i.e. Profit or Loss- Accounting reports provide the management about net results of the business activities like profit or loss earned during the period.
  • Information about financial positions i.e. Balance sheet- Accounting reports provide the management about financial positions of the business like their Assets or Liabilities etc.
  • Helpful for raising loans etc.- Accounting reports helps the businessmen for providing financial data to banks and financial institutions for raising loans etc. like Cash Credit limit, Term loans, Personal loans etc.
  • Helpful for valuation of Goodwill etc.- Accounting reports helps to provide the financial information required at the time of admission of partner, retirement or death of partners and dissolution of firm etc.
  • Helps the management about planning- Accounting reports helps the management about planning their future sales, how to reduce production cost, employees costs, expenses like direct or indirect etc.
  • Evidence in legal matters- Properly maintained accounts, supported by authenticated documents are accepted by the courts as firm evidence.
  • Helpful for completion of Assessments of Income Tax, GST etc.- Properly maintained records helps the assesse for completion of assessments of Income tax, GST etc. Such records can be produced before the authorities during the assessment proceeding.
  • Helpful for providing returns like GST, Income Tax etc.- Properly maintained records helps the assesse to file their periodic returns like GST, Income Tax etc. on the basis of data.
  • Helpful in prevention and detection of errors and frauds- Properly maintained records helps the management to detect fraud and errors by assessing their records or financial statements like bank pass book, debtors/creditors statement etc.
  • Facilitates for sale of business- If a business entity is being sold, the accounting information can be utilized to determine the proper purchase price.
  • Helpful for preparation of cash flow and fund flow- Accounting records helps to show where the funds are utilized by preparing cash flow statement or fund flow statement at periodical intervals.
  • Helps to conduct an Audit- If the proper accounting records has been maintained, it can be audited by the chartered accountant. Certified accounts can be produced to authorities or can be used as a proof for existence of business.


austin cox on 1/29/2024 9:20:05 AM says:
AAT Level 2 is the first step towards your full AAT accounting qualification and successful career in accounting and fin
Vivek on 2/8/2021 7:26:09 AM says:
very very importance and knowledgeable information.
VISHAL BANSAL on 12/22/2018 9:40:20 PM says:

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