Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting

Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting

Accounting - Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting Good evening. Today, I learned all about Accounting - Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting. Which could be very helpful in my experience therefore you.

Accounting vs. Book-keepingBook-keeping concerns itself with the recording (correctly and in a set of books) of those transactions that supervene in the exchange of money or money's worth. Whereas accounting is broad in perspective. It extends to classifying, summarizing, presenting and even analyzing accounting data . What I said. It isn't the conclusion that the actual about Accounting . You read this article for info on an individual wish to know is Accounting . Accounting Accounting vs. Accountancy Body of knowledge (consisting of principles, postulates, assumptions, conventions, concepts and rules) governing the science of recording classifying and analyzing financial transactions is accounting. Whereas the practice and art of the science of accounting is termed as accountancy.To meet the ever increasing demands made on accounting by separate curious parties (such as owners, management, creditors, taxation authorities etc.) the various branches have come into existence. Financial AccountingThe object of financial accounting is to ascertain the supervene (profit or loss) of business operations while the singular period and to state the financial position (Balance Sheet) as on a date at the end of the period. Cost Accounting The object of cost accounting is to find out the cost of goods produced or services rendered by a business. It also helps the business in controlling the costs by indicating avoidable losses and wastes.Management AccountingThe object of management accounting is to supply relevant data at acceptable time to the management to enable it to take decision and supervene control.In this web primer, we are concerned only with financial accounting. The objects of financial accounting as stated above can be achieved only by recording the financial transactions in a systematic manner according to a set of principles. The recorded data has to be classified, analyzed and presented in a manner in which business results and financial position can be ascertained. Uses of Accounting Accounting plays prominent and useful role by developing the data for providing answers to many questions faced by the users of accounting information. (1) How good or bad is the financial health of the business? (2) Has the business activity resulted in a profit or loss? (3) How well the separate departments of the business have performed in the past? (4) Which activities or products have been profitable? (5) Out of the existing products which should be discontinued and the production of which commodities should be increased. (6) either to buy a component from the shop or to build the same? (7) either the cost of production is uncostly or excessive? (8) What has been the impact of existing policies on the profitability of the business? (9) What are the likely results of new policy decisions on time to come earning capacity of the business? (10) In the light of past execution of the business how it should plan for time to come to ensure desired results ? Above mentioned are few examples of the types of questions faced by the users of accounting information. These can be satisfactorily answered with the help of convenient and principal data provided by accounting. Besides, accounting is also useful in the following respects :- (1) Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records obviate the necessity of remembering various transactions. (2) Accounting record, prepared on the basis of uniform practices, will enable a business to assess results of one period with someone else period. (3) Taxation authorities (both wage tax and sales tax) are likely to believe the facts contained in the set of accounting books if maintained according to generally acceptable accounting principles. (4) Cocooning records, backed up by allowable and authenticated vouchers are good evidence in a court of law. (5) If a business is to be sold as a going concern then the values of separate assets as shown by the equilibrium sheet helps in bargaining allowable price for the business. Limitations of Financial Accounting Advantages of accounting discussed in this section do not recommend that accounting is free from limitations. Following are the limitations: Financial accounting permits alternative treatmentsAccounting is based on concepts and it follows " generally acceptable principles" but there exist more than one principle for the rehabilitation of any one item. This permits alternative treatments with in the framework of generally acceptable principles. For example, the conclusion stock of a business may be valued by whatever of the following methods: Fifo (First-in- First-out), Lifo (Last-in-First-out), median Price, acceptable Price etc., but the results are not comparable. Financial accounting does not supply timely information It is not a limitation when high powered software application like HiTech Financial Accenting are used to keep online and concurrent accounts where the equilibrium sheet is made ready almost instantaneously. However, hand-operated accounting does have this shortcoming. Financial accounting is designed to supply data in the form of statements (Balance Sheet and profit and Loss Account) for a period commonly one year. So the data is, at best, of historical interest and only 'post-mortem' determination of the past can be conducted. The business requires timely data at frequent intervals to enable the management to plan and take restorative action. For example, if a business has budgeted that while the current year sales should be $ 12,00,000 then it requires data either the sales in the first month of the year amounted to $ 10,00,000 or less or more? Traditionally, financial accounting is not supposed to supply data at shorter interval less than one year. With the coming of computerized accounting now a software like HiTech Financial Accounting displays monthly profit and loss inventory and equilibrium sheet to overcome this limitation. Financial accounting is influenced by personal judgments'Convention of objectivity' is respected in accounting but to report obvious events estimates have to be made which requires personal judgment. It is very difficult to expect accuracy in time to come estimates and objectivity suffers. For example, in order to decree the number of depreciation to be charged every year for the use of fixed asset it is required evaluation and the wage disclosed by accounting is not authoritative but 'approximation'. Financial accounting ignores prominent non-monetary information Financial accounting does not consider those transactions of non- monetary in nature. For example, extent of competition faced by the business, technical innovations possessed by the business, loyalty and efficiency of the employees; changes in the value of money etc. Are the prominent matters in which management of the business is highly curious but accounting is not tailored to take note of such matters. Thus any user of financial data is, naturally, deprived of vital data which is of non-monetary character. In contemporary times a good accounting software with Mis and Crm can be most useful to overcome this limitation partially. Financial Accounting does not supply detailed analysis The data supplied by the financial accounting is in reality aggregates of the financial transactions while the policy of the year. Of course, it enables to study the broad results of the business the data is required concerning the cost, wage and profit of each product but financial accounting does not supply such detailed data product- wise. For example, if business has earned a total profit of say, $ 5,00,000 while the accounting year and it sells three products namely petrol. Diesel and mobile oil and wants to know profit earned by each product Financial accounting is not likely to help him unless he uses a computerized accounting ideas capable of handling such involved queries. Many reports in a computer accounting software like HiTech Financial Accounting which are explained with graphs and customized reports as per need of the business overcome this limitation. Financial Accounting does not disclose the gift value of the business In financial accounting the position of the business as on a singular date is shown by a statement known as 'Balance Sheet'. In equilibrium Sheet the assets are shown on the basis of "Continuing Entity Concept. Thus it is presumed that business has relatively longer life and will continue to exist indefinitely, hence the asset values are 'going concern values.' The 'realized value' of each asset if sold to-day can't be known by studying the equilibrium sheet. I hope you get new knowledge about Accounting . Where you'll be able to put to easy use in your evryday life. And just remember, your reaction is passed about Accounting . Read more.. Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting.