Accounting

-its types & objectives

 Meaning of Accounting
 “Accounting is the art of recording, classifying, and summarizing, in a significant manner
and in terms of money, transactions, and events which are, in part at least, of a financial
character, and interpreting the results thereof”. AICPA

 “Accounting is the process of recording financial transactions pertaining to a

business. The accounting process includes summarizing, analyzing, and reporting
these transactions to oversight agencies, regulators, and tax collection entities.
The financial statements used in accounting are a concise summary of financial
transactions over an accounting period, summarizing a company's operations,
financial position, and cash flows” - Investopedia
Bookkeeping vs. Accounting: An Overview

 The distinctions between accounting and bookkeeping are subtle yet

essential.
 Bookkeepers record a business's day-to-day financial transactions.
Accountants focus more on the big picture. The two careers are similar, and
accountants and bookkeepers often work side by side. These careers require
many of the same skills and attributes.
 However, significant differences exist.
• Important points

• Regardless of the size of a business, accounting is a necessary function for decision

making, cost planning, and measurement of economic performance.
• A bookkeeper can handle basic accounting needs, but a Certified Public Accountant
(CPA) should be utilized for larger or more advanced accounting tasks.
• Two important types of accounting for businesses are managerial accounting and cost
accounting. Managerial accounting helps management teams make business
decisions, while cost accounting helps business owners decide how much a product
should cost.
• Professional accountants follow a set of standards known as the Generally Accepted
Accounting Principles (GAAP) when preparing financial statements.
• Accounting is an important function of strategic planning, external compliance,
fundraising, and operations management.
Types of Accounting

1. Financial Accounting
These are financial statements that are meant for stakeholders to illustrate how the financial condition of the company is. The
financial statement is one of the most important documents that are generated via accounting This accounting is also termed
financial reporting as it is the procedure of generating financial information for internal as well as external use in the form of
financial statements. The financial statements of every company reflect its past performance and present situation according to
accounting standards specified by the authority. The process of financial accounting involves certain accounting conventions and
rules and regulations which are supposed to implement by the accountant of the company in preparation of financial statements.
2. Management Accounting
This accounting is majorly focused on the management of the company. It is primarily made for internal use by the management
of an organization and provided information shall be more detailed than the information needed for external use. This accounting
helps in enabling effective control and the fulfillment of the strategies made for the development of the company. Generally, this
accounting includes forecasting and budgeting of the projects for better results and profit maximization in the company with the
effective utilization of resources available in the company. It also includes the report of past performance and its result. This
accounting is mostly used by corporates to deal with their management while implementing new budgets and future policies.
 3. Public Accounting
 It is also known as Government accounting and it refers to the accounting which is used in the public sector at
large. Government accounting is necessary for the public companies because it has different objectives according
to state or central government and privately owned institutions. Public accounting ensures the financial structure
of the government as well as public sector companies with the budgeted system provided under some money
constraints. This accounting shows the financial position of the public sector companies and shows the
comparative analysis of past performance with the current performance.
 4. Tax Accounting
 Tax accounting is about taxation and it helps the companies get the most tax saving. Usually, tax accounting is
regulated by a governing authority, such as Internal Revenue Service (IRS) and the tax accounting must be done
following their guidelines.
 This is the type of accounting that is related to the matters of taxation. It is governed by the jurisdiction of tax
laws and prescribed rules and regulations. The taxation rules are varying from the GAAP rules to support the
differences. Tax accountants are generally prepared the financial statements according to prescribed accounting
regulations concerning taxation laws. The information from this accounting is beneficial for the tax professionals
to analyze the tax planning and estimate the tax liability of the entities with tax implications added thereon.
 5. Forensic Accounting
 It is a different kind of accounting which is related to some investigation techniques. These professionals are
known as the Sherlock Holmes of the accounting world. They use an authentic way of accounting by
investigation and auditing in cases of litigation or accounting fraud or disputes related to laws and regulations.
The accountants of forensic accounting considered experts in matters involving litigations or financial frauds.
 6. Project Accounting
 Project Accounting is an important constituent of project management. Accounting of these projects is done
through the accounting system in which there is a track of the financial progress of a project via frequent
financial reporting. It is a specialized branch of accounting and it provides a competitive edge to the projects of
the company. For project-oriented business it the must accounting system as it provides good results.
7. Social Accounting

 It is also called as Sustainability and Corporate Social Responsibility Reporting. It is

the process of analysing the implication of ecological and social environment factors
that are related to the company. It is the form of reporting in which environmental
reports are prepared to be accompanying the annual accounting reports of the
companies.
 It refers to the process of accounting which deals with corporate social responsibility
and other environmental factors that are constituting the company and evaluation of
external environment factors that are necessary to report to keep the track record of the
changes with the past reports. However, this accounting is new in the business era but
is considered to be implemented for good corporate governance. It is considered as the
growing environmental consciousness between the society at large.
Merger accounting
 Merger accounting is a method for managing combined accounts that is more
readily interpreted and used in accounting for company reconstructions,
including the sale of whole firms to consider shares. The transaction process, in
which the agreement is perceived from the viewpoint of the merging party
known as the acquirer, is a typical approach when evaluating an M&A. The
acquirer takes over the acquiree’s assets, liabilities, and other business aspects
relevant to the acquiree’s activities.
 Before discussing how to apply merger accounting, it’s important to understand
the goals of the method, which are to:
• avoid the recognition of unrealized gains and losses that may result from a fair
valuation of the share consideration; and
• avoid the fair valuation of transferred assets and liabilities, as well as the
recognition of goodwill, since there is no buyer and no ‘goodwill
Conclusion

 Accounting is a dynamic and vast profession that is crucial to implemented by the

companies according to the needs. There are kinds of Accounting which are specific to
the need of the users. Accounting is mandatory in every single organization to record
the financial as well as non-financial information which is useful for the management
as well as the outsiders of the company. The concept of different accounting enhances
the scope of accounting in every field as specific accounting platform are there to
implement according to the nature of business and its demand for business activities. It
is the process of collecting information and analyzing them to record in a numeric
sequence so that it would be easy to understand the reports prepared by the accountants
or auditors. It is important to apply the accounting in the business to control the internal
and external environment.
 Objectives of Accounting

1. Identification and recording of transactions

The primary object of accounting is to identify financial transactions and to record these systematically in the books of accounts. As
a result, the true nature of each and every transaction is known without much exercise of memory.
With this end in view, the transactions are primarily recorded in general and in a special journal and later on permanently various
accounts are kept in the ledger.

2. Ascertainment of results
Every business concern is interested to know its operating results at the end of a particular period.
The amount of profit or loss for a particular period of a business concern can be ascertained by preparing an income statement with
the help of ledger account balances of a revenue nature.
Surplus or deficit of revenue for a particular period of a non-trading concern can also be ascertained by preparing an income and
expenditure account or statement.
3. Ascertainment of financial affairs
Ascertainment of debts-liabilities, property, and assets i.e. total financial affairs of an
organization at a particular date is another important object of Accounting.
Financial affairs of concern at a particular date can be ascertained by preparing a balance
sheet.
The balance sheet is the statement of assets and liabilities of concern at a particular date.

4. Keeping accounts of cash

Cash book is a prominent book of the books of accounts.
Cash receipts and cash payments are accounted for in this book. A number of daily cash
receipts, payments, cash in hand and cash at the bank can be known from this book.
Fraud, forgery, and misappropriation of money are reduced by keeping cash book
scientifically and accurately.
5. Control over assets and liabilities
For running a business successfully a businessman is to acquire various assets like land, building, machinery, etc.
He is to face various debts and liabilities like accounts payable, notes payable, loan, bank overdraft, etc. side by side
with die acquisition of assets.
The actual position of these debts-liabilities, property, and assets can be ascertained through the proper keeping of
accounts.
A businessman can take the right steps for controlling the quantity of assets decrease and liability increase.
6. Controlling money defalcation and cost
Prevention of money defalcation through fraud and forgery and controlling the cost of concern are also the main
objects of Accounting.
Prevention of money defalcation and cost control become easier if accounts are kept scientifically.
7. Providing economic data
Another noble object of accounting is to provide the concerned parties with all economic information preparing
financial statements and reports etc. in time.
8. Helping tax fixation
Accounts prepared on the basis of accepted accounting principles in considered reliable to the income tax and VAT
authorities for easy determination and settlement of tax and VAT.
9. Determination and evaluation of policy
The object of accounting is to help the management in determining and evaluating the management policies in
running the business successfully by supplying necessary, information, interpreting and analyzing the financial
statements.
 10. Testing the arithmetical accuracy of accounts
 One of the main objects of scientific methods of accounting is to make sure that accounts have been kept in a
proper way. The arithmetical accuracy of accounts kept in the ledger can be assured by preparing a trial
balance.
 Agreement of a trial balance is the proof of the arithmetical accuracy of accounts. The advantage of taking
loans due to the insufficiency of capital, borrowing capital from outsiders is felt necessary to run a business.
 Loan givers are not willing to give a loan without knowing the financial position of a business. The financial
statement of a business concern reflects the solvency or loan repayment capability of that concern.
 11. Acceptability to others
 Banks or financial institutions are interested to know the accurate financial position of business concern for
sanctioning loans.
 On the other hand, the government or other authorities may also ask about the financial position of business
concern for various reasons.
 In these cases, the accounts maintained in a disciplined way become easily acceptable to the interested
institutions or authorities.
 12. Creation of values and accountability
 The object of accounts maintained in an acceptable way is to create higher values among
individuals and organizations and thereby creating awareness in preventing money
defalcation, misappropriation of fund and cost control by ensuring transparency and
accountability.
 13. Following legal bindings and prohibition
 As all kinds of business organizations have to abide by some legal bindings and
prohibitions, they are to maintain their accounts accurately.
 For example;
 Partnership law, income tax law, and company law, etc. compel business organizations to
maintain their accounts in an appropriate manner.
 The main objectives of accounting are maintaining a complete and systematic record of all
transactions and analyzing the financial position of a business.
 Every individual or a business concern is interested to know the results of financial
transactions and their results are ascertained through the accounting process.
How Financial Accounting Differs From Managerial
Accounting?

 Financial accounting and managerial accounting are two of the four largest branches
of the accounting discipline (e.g. tax accounting and auditing are others). Despite
many similarities in approach and usage, there are significant differences between
the financial and managerial accounting. These differences primarily center around
compliance, accounting standards, and target audiences.
• Managerial accounting is the practice of identifying, measuring, analyzing,
interpreting, and communicating financial information to managers for the pursuit
of an organization's goals.
• Financial accounting involves recording, summarizing, and reporting the stream of
transactions and economic activity resulting from business operations over a period
of time to the public or regulators.
• Managerial accounting differs from financial accounting because the intended
purpose of managerial accounting is to assist users internal to the company in
making well-informed business decisions.
Accounting Equation

 The accounting equation is a basic principle of accounting and a fundamental element of

the balance sheet. The equation is as follows:
 Assets = Liabilities + Shareholder’s Equity
 This equation sets the foundation of double-entry accounting, also known as double-entry
bookkeeping, and highlights the structure of the balance sheet. Double-entry accounting is
a system where every transaction affects at least two accounts.
 For example, an increase in an asset account can be matched by an equal increase to a
related liability or shareholder’s equity account such that the accounting equation stays in
balance. Alternatively, an increase in an asset account can be matched by an equal
decrease in another asset account. It is important to keep the accounting equation in mind
when performing journal entries.
 Journal entries often use the language of debits (DR) and credits (CR). A debit refers to an
increase in an asset or a decrease in a liability or shareholders’ equity. A credit in contrast
refers to a decrease in an asset or an increase in a liability or shareholders’ equity.  
 The accounting equation can also be rearranged into the following form:
 Shareholder’s Equity = Assets – Liabilities
 In this form, it is easier to highlight the relationship between shareholder’s
equity and debt (liabilities). As you can see, shareholder’s equity is the
remainder after liabilities have been subtracted from assets. This is
because creditors – parties that lend money such as banks – have the first
claim to a company’s assets.