OBJECTIVES

1.0 OBJECTIVES

After studying this unit you should be able to :

• appreciate the need for accounting 
• define accounting and outline its scope 
• distinguish between book-keeping, accounting'and accountancy 
• identify the parties interested in accounting information 
• describe the advantages and limitations of accounting 
• explain the accounting concepts tp be observed at the recording stage 
• explain the systems of book-keeping 
• classify aCC0un~d 
• analyse the transactions and identify the accounts to be debited and credited 
• identify the stages' involved in accounting

1.1 INTRODUCTION

In business numerous transactions take place every day. It is humanly impossible to remember all of them. Hence the need to record them. The recording of business transactions .is the main function served by Accounting. With the help of accounting records the businessman is able to ascertain the profit or loss and the financial position of his Business at the end of a given period and communicate such information to all iilterested parties. In this unit we intend to have an overview of Accounting and discuss its nature, . scope and importance. We shall dso discuss the basic concepts which are to be observed at the recording stage and explain tlie principle of double entry i.e,, the rules of debit and . credit.

1.2 ACCOLTNTIMG-AN OVERVIEW 

You know there is a limit to human memory. You cannot remember everything you do or each transaction you make. If you are given Rs. 5,000 and asked to buy a number of items you will find it difficult to remember the detail of various items you purchased. Hence, it becomes necessary for you to write them on a piece of paper or a note book. It is still more difficult in case of business which usually involves a large nbmber of transactions. In ' business you have to buy and sell more frequently. You make payments and receive payments every now and then. It becomes almost impossible to remember all these transactions.'~~, unless'you'record them properly you cannot obtain any financial information you need. For example, you cannot easily ascertain the amounts to be received from various customers to whom the goods were sold on credit. You will not know the detail of how much you owe to your suppliers. You may also find it difficult to work out the profit earned or loss incurred during a particular period. It is, therefore, necessarj to maintain a proper record of all the transactions which take place from time to time. The I recording of business transactions in a systematic manner is the n~ain function served by I accounting. Whichever the form of business organisation-a sole proprietorship, a partnership, a company, or a co-operative society-it has to maintain proper accounts. he accounting information is useful both for the management and the outside agencies like tax authorities, banks, creditors etc. The management needs it for purposes of planning, controlling and decision making. The banks and creditors require it for assessing the credit worthiness of the business and the tax authorities use it for determinirig the amwnt of income tax, sales tax, etc. In fact, accounting is necessary not only for business organisations but also for non-business organisations like schools, colleges, hospitals, clubs etc.