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Accounting & Its Functions

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Accounting & Its Functions

Uploaded by

Tonmoy Das
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Unit 1: Accounting & its

Functions

Dr. Md. Serazul Islam


Professor (Accounting)
School of Business
Bangladesh Open University, Gazipur
[email protected]
MEANING OF ACCOUNTING

Accounting is an information system that


■ Identifies;
■ Records; and
■ Communicates the economic events of an
organization to interested users.

Dr Ser@z 2
ACCOUNTING PROCESS/FUNCTIONS

Dr Ser@z 3
ACCOUNTING AS AN INFORMATION SYSTEM

Actio
n
Decision Makers
INPUT

Informatio

OUTPUT
Business

n
Activities
(Transactions)
Data
Accounting

Dr Ser@z 4
USERS OF ACCOUNTING INFORMATION
Accounting is often called ‘the language of business.

Users of Accounting Information

Internal Users External Users

Management Direct Interest Indirect Interest


marketing manager Present & potential taxing authority
decision makers -investors regulatory agency
production supervisors -creditors customers
finance directors employees
company officers/secretary economic planner

Dr Ser@z 5
QUESTIONS ASKED BY INTERNAL USERS

Dr Ser@z 6
QUESTIONS ASKED BY EXTERNAL USERS

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Accounting as a Language of
Business
Accounting is often called the language of
businesses as it communicates financial
information of a business enterprise to
divergent groups of users. We know language
is a way of expressing our feelings to others
and this includes various words, terms &
grammar. Like this, Accounting has its terms
[Debit, Credit], grammar [Double entry
system].
Dr Ser@z 8
Accounting as a Language of
Business
So Accounting is, of course, a language. The
information that a user of financial
information needs depends upon the kinds of
decisions he or she makes and on his or her
ability. On the basis of the differences in the
decisions the users of financial information
are divided into 2 broad categories:
•Internal users
•External users

Dr Ser@z 9
USERS & USES OF ACCOUNTING
Users Uses Accounting Financial
Information Statements

Management -Overall -Value of share price -Income


performance - Proposed dividend statement
-Profitability and / or dividend paid -Cash flow
-Liquidity statement
-Balance sheet

Investors/ -Value of -Value of share price -Income


Shareholder investment - Proposed dividend statement
s/Owners -Profitability & and / or dividend paid -Cash flow
dividend statement
-Balance sheet

Dr Ser@z 10
USERS & USES OF ACCOUNTING
Users Uses Accounting Financial
Information Statements
Creditors - Solvency Cash availability Cash flow
- Liquidity statement

Tax - Amount of tax -Net profit & amount -Income


of tax
authority - Amount of statement
- VAT duly paid
(NBR) VAT -Value added
statement
Regulatory Compliance -Proper audit -Audit report
agencies with existing -Election of directors -Details of
(SEC, DSE, laws and annual report
-Annual general
CSE, etc.) bylaws
meeting properly held
etc.
Dr Ser@z 11
USERS & USES OF ACCOUNTING
Users Uses Accounting Financial
Information Statements

Customers - Product/service Fairness of pricing Income


policies (relative
quality proportion of unit statement
- Business ethics price
(cost+profit+tax)
- Social responsibility

Employees -Short-run basis: -Salary & other -Income


fringe benefits
• Present status (bonus, group statement
-Long-run basis: insurance scheme, -Balance
etc.)
sheet
• Future prospect -Provident fund,
gratuity
-Liability & asset
position
Dr Ser@z 12
USERS & USES OF ACCOUNTING
Users Uses Accounting Financial
Information Statements

Economic Planning and Production, tax, Details of


dividend,
planners forecasting economic income, annual reports
activities investment, including
employment financial
statements

Dr Ser@z 13
ACCOUNTING PROFESSION/PERSONNEL

• Public Accountants
Offer expert services (Auditing, Taxation (Tax service), and
Management Consulting )to the public in much the same
way that a doctor serves patients and a lawyer serves
clients.
• Private Accountants
Individuals in companies involved in activities including
general accounting, cost and tax accounting, accounting
information systems, and internal auditing.
• Not For Profit Accountants
Record and account for receipts and disbursements
(payments) for their organizations (government units,
foundations, hospitals, labor unions, colleges/universities, and
charities) .

Dr Ser@z 14
Topics for Self Study
■ Scope of Accounting (p.3)
■ Emerging Role of Accounting (p.5)
■ Organisation for Accounting and Finance
(p.12)

Dr Ser@z 15
Dr Ser@z 16

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