what is role of accounting class11 accounts please reply fast and in simple language
Answers
Accounting is used to maintain a systematic record of all the financial transactions in a book of accounts. For this, all the transactions are recorded in chronological order in Journal and then posted to principle book i.e. Ledger.
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Objectives of Accounting
1. To keep systematic and complete record of financial transactions in the books of accounts according to specified principles and rules to avoid the possibility of omission and fraud.
2. To ascertain the profit earned or loss incurred during a particular accounting period which further help in knowing the financial performance of a business.
3. To ascertain the financial position of the business by the means of financial statement i.e. balance sheet which shows assets on one side and Capital & Liabilities on the other side.
4. To provide useful accounting information to users like owners, investors, creditors, banks, employees and government authorities etc who analyze them as per their requirements.
5. To provide financial information to the management which help in decision making, budgeting and forecasting.
6. To prevent frauds by maintaining regular and systematic accounting records.
Advantages of Accounting
1. It provides information which is useful to management for making economic decisions.
2. It help owners to compare one year’s results with those of other years to locate the factors which leads to changes.
3. It provide information about the financial position of the business by means of balance sheet which shows assets on one side and Capital & Liabilities on the other side.
4. It help in keeping systematic and complete record of business transactions in the books of accounts according to specified principles and rules, which is accepted by the Courts as evidence.
5. It help a firm in the assessment of its correct tax Liabilities such as income tax, sales tax, VAT, excise duty etc.
6. Properly maintained accounts help a business entity in determining its proper purchase price.
Limitations of Accounting
1. It is historical in nature; it does not reflect the current worth of a business.
Moreover, the figures given in financial statements ignore the effects of changes in price level.
2. It contain only those informations which can be expressed in terms of money. It ignore qualitative elements such as efficiency of management, quality of staff, customers satisfactions etc.
3. It may be affected by window dressing i.e. manipulation in accounts to present a more favorable position of a business firm than its actual position.
4. It is not free from personal bias and personal judgment of the people dealing with it. For example different people have different opinions regarding life of asset for calculating depreciation, provision for doubtful debts etc.
5. It is based on various concepts and conventions which may hamper the disclosure of realistic financial position of a business firm. For example assets in balance sheet are shown at their cost and not at their market value which could be realised on their sale.