BCOC-131 FINANCIAL ACCOUNTING UNIT-1 NATURE AND SCOPE OF ACCOUNTING SHORT NOTES

ACCOUNTING:- Accounting is a systematic process of identifying , recording classifying, summarising and interpreting financial information. It provides insights into the financial health and performance of an entity , facilitating decision making and ensuring accountability.

OBJECTIVES OF ACCOUNTING:-
1. Recording financial transaction:-to systematically record all financial transactions of

business, ensuring a comprehensive and accurate financial record.

2. Financial reporting:-to provide relevant financial information to internal and external

   stakeholders ,aiding in decision making

3. Compliance:-to ensure adherence to legal and regulatory requirements ,such as tax

   laws and financial reporting standards.

4. Management control:-to assist management in controlling and directing the

   operations of the business through financial analysis and reporting

5. Asset protection

6. Budgeting band planning

7. Performance evaluation

SCOPE OF ACCOUNTING:- • Identified

• Classified

• Measured

• Summarize

• Analysis •

  USERS OF FINANCIAL ACCOUNTING INFORMATION:-

• Owners

• Managers

• Lenders

• Creditors

• Prospective investors

• Tax authorities

• Employees
  ACCOUNTING AS AN INFORMATION SYSTEM:-
  Accounting is commonly divided into two 1.Financil accounting 2. Managerial accounting

  Financial accounting:-it refers to the preparation of general purpose reports for use by persons outside an organization such users include shareholder, creditors, financial analyst , labour unions, government regulations etc.

  Managerial accounting:-it refers to providing information to managers inside the organization. For example a production manager may want report on the number of units of product manufactured by various workers in order to evaluate their performance. Managerial reports are not widely distributed outside because they often contain confidential.

Uses of accounting information :-

• Managerial decision making

• Managerial planning, control and internal performance evaluation

• External financial reporting

  BRANCHES OF ACCOUNTING:-branch accounting is a system where separate financial statements are maintained for each branch or division of business, this approach allows business with multiple location or branches to track the financial performance of each independently.

  COST ACCOUNTING:-Cost accounting is the branch of accounting that focuses on capturing, analyzing and allocating cost associated with production of goods or services. its primary goal is to provide detailed information about cost to help management make informed decision , control expenses and improve efficiency

  MANAGEMENT ACCOUNTING:- the purpose of management accounting is assist the management in taking rational policy decisioned to evaluate the impact of its decision and action.

  ADVANTAGES OF ACCOUNTING:-

• Replace memory

• Provide control over asset

• Decision making

• Facilitate the preparation of financial statements

• Meets the information requirements

• Ascertaining value of business

• Financial monitoring

  DISADVANTAGES OF ACCOUNTING:-

• Subjectivity

• Historical emphasis

• Ignores non monetary factors

• Complexity

• Doesn’t reflect market value

• Doesn’t predict future events

• Compliance cost

• Focus on quantifiable aspects

  BASES OF ACCOUNTING:-
  1.Cash basis of accounting:-record transaction when actual cash received or paid,

• suitable for small business with straightforward transaction.

• Doesn’t consider accounts receivable or payable.

• Provide more immediate view of cash flow

  2.Accural basis of accounting

• Records transaction when they occur , regardless of when the cash is exchanged

• Matches revenues with expense in the time period they are incurred.

• Present more comprehensive view of business financial position

QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION:-

• Understandable :- financial information should be presented in a clear and concise

  manner so the user with a reasonable understanding of business and economic

  activities can interpret it

• Usefulness :- it provides most useful information for decision making process

• Relevance :- information is relevant if it influences the decision of the users, it should

  be timely and have predictive and feedback value

• Reliability:- Information is reliable if it is free from error and bias and can be

  depended upon by users

• Comparability:- users can compare financial information across different periods or

  entities to identify trends and make meaning full evaluation

• Consistency :- similar transaction and events should be accounted for in a consistent

  manner across different periods , providing reliability and comparability. FUNCTIONS OF ACCOUNTING:-

• Recording transactions

• Classifying transactions

• Summarising data

• analysis and interpret

• communicate