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The knowledge of how to make accounting is called accountancy. Accountancy tells us how to maintain various books of account, how to prepare them and how to communicate accounting information to the parties interested n them. Thus, Accounting is a systematic knowledge like other academic subjects such as Economics, Physics, Chemistry, etc., and puts such knowledge into practice.



Accounts –
Entries relating to a particular person or a thing at one place so as to get the results (net) at one place.

Accounting is different from book – keeping. Book – keeping is recording of the transaction whereas Accounting is to analyze and interpret those results. Accounting begins where book keeping ends.   

Distinguish Between Book-Keeping And Accounting 


Basis of Distinc­t­ion

Book- Keeping



Recording of transac­tion

Record­­ing analysis and interpre­tation of business transac­tions.


Primary stage

Second­­ary stage


It does not require special know­le­dge and ability. It is done by clerical i.e. junior staff.

It requires special knowle­­­dge and ability. It is done by qualified and senior staff.


Outsiders do not have any interest in it.

Various groups including outsiders have interest in it.


It is comple­mentary to account­ing

It is not comple­mentary to book- keeping.


There is no branch of Book- Keeping.

It has several branches like finan­cial, cost, manage­ment accou­n­t­­ing etc.

Financ­ial position

Financial position cannot be ascer­tained.

Financial position is ascertai­ned.

Base/ Langu­­age

Base for account­ing.

Langu­age of the business.

Objectives of Accounting

Systematic recording of transactions : there is a limit to human memory and therefore, a systematic record of all transactions is essential for every business.

Ascertainment of operational profit or loss : helps in ascertaining the net profit earned or loss suffered by the business.

Ascertainment of the financial position of the business: balance sheet.

Communication of results : to interested groups viz., investors, employees, creditors etc.

To facilitate rational decision-making : by providing relevant data.

To meet legal requirements : as required by companies act, income tax act.

Functions of Accounting

Measurement : Accounting measures past performance of the business entity and depicts its current financial position. 

Forecasting : Accounting helps in forecasting future performance and financial position of the enterprise using past data.

Decision-making : Accounting provides relevant information to the users of accounts 'to aid rational decision-making.      .

Comparison & evaluation : Accounting assesses performance achieved in relation to targets and discloses information regarding accounting policies and contingent liabilities which play an important role in predicting, comparing and evaluating the financial results.

Control : Accounting also identifies weaknesses of the operational system and provides feedbacks regarding effectiveness of measures adopted to check such weaknesses.

Government regulation and taxation : Accounting provides necessary information to the government to exercise control on the entity as well as in collection of tax revenues.


 The Sub-fields Accounting

Financial accounting : Concerned with the recording, classifying, analyzing, summarizing and interpreting of financial transactions and events and communicating the results.        
Cost accounting : Mainly concerned with the determination of the cost of each product so that the reasonable selling price of the product may be determined. The main purpose is to ascertain the cost, to control the cost and to communicate the information to the decision maker.                 
Management accounting : Provides useful information to management to discharge their functions. Mainly decision making. 

Human resource accounting : Is an attempt to report investments made in human resources of an organization. Like what is done for their betterment. Say for example Refresher Course, Seminars, and Personality Development Course etc.

Social responsibility accounting : It is the process of identifying and measuring the social effects of the business decisions and communicating to the users of accounts and society.

Advantages of Accounting


Following are the advantages of accounting:

Helps in ascertaining the profit and financial position: Statement of Profits and Loss Account and Balance Sheet.

Assists in managing the business : Helps the management in taking prompt decisions.
Helps in remembering : Cannot remember all the transactions, therefore, every transaction should be recorded so that there may not be any misappropriation.

Proof in the court of law : If the accounts of business are kept properly, according to the principles of accounting, they can be presented in the court of law for giving necessary documentary evidence.

Correct payment of taxes : Helps in ascertaining the tax liability if accounts are to be maintained according to principles of accounting.

Comparative study : Accounting facilitates inter-firm and intra-firm.

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