Posted by
Veena Devi
- Get link
- Other Apps
Advantages Of Accounting:
1. Maintenance of business records
2. Preparation of final statements
3. Helps in Comparison of results
4. Helps in fecision making
5. Goods evidence in court.
6. Planning and control of operations.
7. Provides information to interested person
8. Helps in raising loans
9. Valuation of business
10. Helps in complying taxation matters
Limitations Of Accounting:-
Ignores non monetary items:
1. The accounting measures only those events that are financial in nature, i.e. capable of being expressed in money.
2. Non-monetary items, however significant they may be, are not measured or recoreded in accounting.
Based On Estimates:
1. Accounting data is sometimes based on estimates and estimates may be inaccurate.
2. For example actual life of assets connot be accurately calculated for the purpose of providing depreciation.
Personal Influence:
1. Accounting information is not without personal influence or bias of the accountant.
2. In measuring income, accountant applies a choice between different method of inventory valuation, depreciation and treatment o capital or revenue items.
3. Thus due to lack of objectivity, income measured may not be true in certain cases.
Historical Cost:
1. Fixed assets are shown at cost.
2. This value may change over time and so they may be a great difference between original cost at which assets were purchased and current replacement cost.
3. Balance sheet thus may not show true and fair view of the financial affairs of the firm on a particular date.
Fails To Provide Timely Information:
1. Accounting statements like Profit and Loss a/c and Balance sheet statements are prepared after a year.
2. These statements are nothing but the postmortem of the past, and unable to notice the need for taking corrective measure needed in between the year, if needed.
Accounting Principle:
Meaning:
1. Are the rules or course of action or body of ductrines.
2. These serve as a guide when alternatives exist.
Object: To have
1. Uniform basis of accounting
(I.e. same methods like of depreciation or stock valuation )
2. Consistency
(like presentation of financial statements either horizontally or vertically)
3. Unity in approach
(different accountants having varied style of work but to reach at same result)
GAAP: Accounting principle when are accepted to be used uniformly become generally accepted accounting principles.
Varied Terms: There are different terms or words used like concepts, conventions, assumptions, postulates or principles, which are interchangeable & have the same object.
Concepts mean the basic assumptions, logics, reasoning & conditions on which the system of accounting is based. It has universal application.
Conventions are the customs, practices & traditional followed by accountants form the ancient times.
Business Entity Concept:
Meaning:
1. Accounting to this concept business is treated as a unit or entity distinct/apart from its owner, managers and other parties related to it.
2. All the transactions of the business are recorded in the books of the business from business point of view.
3. This concept is applicable to all the business forms.
Relevance:
1. Even the proprietor of the business is treated as the creditor of the business to the extend of the capital.
2. Upon investment of the capital it is assumed that proprietor has given the money and business received the money.
3. Personal affairs of owner have no effect on the business.
Going Concern Concept:
Meaning:
1. A Going concern is defined as any enterprise, which is expected to continue operating indefinitely in the future.
2. This concept assumes that a business entity will continue to operate indefinitely and that it will not be liquidated in the immediate future.
3. This concept assumes that the continuance of business will be able to meet its contractual obligations and use its resources according to the plan.
Comments
Post a Comment