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CBSE NOTES ⇒ Class 11th ⇒ Accounts ⇒ 1. Introduction to Accounting

1. Introduction to Accounting

Advantage And Limitation of Acounting

Functions of Accounting: 

(i) maintaining systematic records :- Accounting records the financial transaction in the Systematic manner.

(ii) Communication the financial result :- Accounting is used to communicate financial information like net profit.

(iii) Meeting legal needs :- Accounting helps for meeting legal needs for various legal purposes like annual accounts, income tax return, sales tax return

(iv) protecting business assets :-  Accounting maintains proper rewards various assets and helps to management to protects business assets by providing relevant information.

(v) Accounting assists the management in decision making :- Accounting assists the management in decision making planning, controlling and coordination of business Activities.

(vi) Ascertaining the business profit and losses :- Accounting helps in determining the coredt net profit and loss of enterprises.

(vii) Ascertaining the financial position :- Accounting helps in determining the financial position of an enterprises with helps of balance sheets.

Summary : 

(i) It helps to maintain systematic accounting records of financial transactions and events. 

(ii) It helps for preparation of financial statements at the end of financial year included profit and loss and balance sheet. 

(iii) Meeting legal requirements : it is also helpful to fulfil the legal requirements and it is also accepted as evidence by the court of law if they are maintained systemically following the accounting principles and concepts. 

(iv) Communicating the financial data

(v) Assisting the management

Objectives of accounting :

(i) Maintaining accounting records :- The first objectives of accounting is to maintain systematic record of transaction.

(ii) Determining profited loss :- The second main objectives of accounting is to determine correct net profit & by preparing profit& loss A/C.

(iii) Determining financial position :- Accounting helps to determine financial position of business by preparing balance sheet.

(iv) providing Accounting information to the user :- Accounting helps to communicate the financial information like net profit, assets, liabilities to interested parties.

(v) Assisting the management :- Accounting Assist the management in decision making by providing relevant information.

Advantage of accounting :

(i) provides financial information about the business to interested porties, likes, net profit, assets and liabilities.

(ii) Helps in comparison of financial results :-

-  Comparison of its own results of different results

-  Comparison of financial of financial results with other firms.

(iii) Helps in decision making by providing relevant information.

(iv) Accounting information can be used as an evidence in legal & taxation matter

(v) Providing information to interest parties and user.

(vi) Accounting record business records in systematic manner.

(vii) Accounting helps in preparation of financial statement like PG2 A/C  balance sheet.

Disadvantages (limitations) of accounting :-

(i) Accounting records only those transaction which can be measures in the terms of money. It ignore non monetary transaction.

(ii) Accounting information is sometimes based on estimates which may be unrealistic.

(iii) Window dressing may lead to faulty results. Window dressing means. manipulation of accounts and show easy picture of the financial statements.

(iv) Accounting ignores the effect of price level changes. transaction records on historical cost. Ex- fixed assets recorded at historical cost.

(v) Accounting information can be manipulated and thus cannot be considered as the true test of performance.

(vi) Accounting information may be biased. accounting information is not without personal influences or bias of accountant.

Characteristics of accounting :

(i) Accounting records transactions and events which are of financial nature .

(ii) accounting is an act.

(iii) it involves following activities, recording, classifying and summarizing.

(iv) Accounting helps in determining the financial position of an enterprise with of balance sheet.

(v) Accounting helps in determining profit and losses of an enterprises.

(vi) It records transaction in the term of money. 

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