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Explain the Meaning of Accounting?

It is the process of identifying, measuring, recording and communicating the economic events of the organization to interested users of the information.


Define Accounting?

Accounting is defines as “the art of recording, classifying and summarizing in terms of money transactions and events of a financial character and interpreting the results there of.”


Define the Steps in accounting Process?

Solution: Identification of Economic events (Transactions)
  Measurement (Quantity)
  Recording ( Record, classify, and summarize)



Define Accounting? Explain its Features?

The American Accounting Association (AAA) defined accounting as ‘the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information’.

The essential characteristics of the accounting:

Economic Events
  Identification, measurement, recording, and communication
  Interested users of information.

Economic Events:

Economic Events is defined as an happening of events in an Business organization.

Events classified into external and internal events.

External Events:

It is an economic event that occurs with outside the enterprise. e.g. Goods sold to customer

Internal Events:

It is an economic event that occurs within one enterprise. e.g., Salary paid to employees

Identification, Measurement, Recording and Communication:


To identify events which are to be recorded

In involves of selecting only those events which are financial in nature and relate to his business

Business transaction and events are evaluated to decide whether it has to be recorded in books of accounts.

Transactions like value of human resources, changes in managerial policies, quality of the product cannot record in accounts in spite of their importance to the business.


All business transactions are Measured and expressed in terms of money.

The Money Measurement excludes all business transactions and events which cannot be measured in terms of Money.

i.e. Quality of the product, working conditions are excluded in the books of accounts.


Once the business transactions are identified and measured in financial terms, these are recorded as and when it occurs in Chronological order.

Every entry recorded has to be supported by documentary evidence and is made available as and when required.


The business transactions are identified, measure and recorded in order to supplies appropriates information to different interested groups such owners, creditors, employees, tax authorities, and government.


It refers to business enterprise such as sole-proprietary concern, partnership firm, Co-operative society, company, local authority, Municipal corporation, or any other association of persons.

Interested users of Information:

Accounting supplies appropriate information to different interested groups both internal and external .

An internal user includes –owners, management, employees.

An external user includes- Government, consumers, creditors & financiers, investors, Tax authorities, and Research Scholars.


List out the objectives of accounting?

The objectives of accounting are

i. Maintenances of Records of Business

ii. Calculation of profit or loss

iii. Depiction of Financial position

iv. Provide information to the users


Explain the objectives of Accounting?

The following are the general objectives of accounting

I. Maintenances of Records of Business Transactions:

Systematic recording of business transactions is the first step in the process of accounting.

While recording the information the accounting convention and concepts have to be followed.

Transactions relating to business have become so important that their recording has become a necessity.

Moreover, the accounting records is also acts as an evidences.


II. Calculations of Profit and Loss:

To ascertain the net results of business operation (i.e.) Profit /loss incurred during a period.

A proper record of all incomes and expenditure enables the business to prepare Profit and loss to ascertain the net result of business operation during a particular period.

III. Depiction of Financial Position:

A proper record of assets and liability are maintained in order to view the financial position of the business concern.

Assets- Resources owned by business organization.

Liability- Claims against such resources.

IV. Providing Accounting Information to its users

Accounting information are communicated to other parties apart from owners & proprietor, they are Tax authorities, creditors, customer, employee etc., Communication may be in the form of report, graph, charts etc., to the users.


List out the External users of an accounting information?

Regulatory Agencies

Tax Authorities



Stock Exchange


Investors etc.,


Explain the concept Accounting as a Source of information?

Accounting information should ensure to:

Provide information for maintaining and utilizing resource effectively.

Provide appropriate information to different interested groups

Provide effective information directing the controlling of an organization's human and material resources

Provide information facilitating social function and control.


For what purpose the decision makers use accounting information?

I. Owners- Interested to know the profit, value of assets/liability , Accounting facts and information for filing various returns

II. Management- useful for setting up target for future periods

III. Potential investors- Are in need of detailed information about the progress of the business Concern and take decision to invest in a particular business.

IV. Creditors- Interested in knowing the credit worthiness of the business concern and its ability to repay the loan and interest.

V. Employee – Interested in the performances, stability, profitability, distribution of wealth within the business concern.

VI. Government- Information on the allocation of resources and compliances of regulations

VII. Competitors: Requires information mainly for strategic purposes


Explain the Role of accounting?

Role of Accounting

-Accounting is the art of recording business transactions.

-It analyses the data of an enterprise through identification, Measurement, classification and summarization. It presents the data in the form of report/statements to show the Net result and financial position of the business operation.

-Accounting supplies appropriate information to different interested group both internal and external

-The major limitations in accounting information system is , it does not provide qualitative and non- financial information.


i. Assets ii. Liability iii. Capital


i. Assets :

It is anything of value owned by an enterprise. Assets are classified into Tangible Assets and Intangible Assets.

Tangible Assets: Which have physical Existences . e.g. Cash, Machinery, etc.,

Intangible Assets: Which have no physical Existences . e.g. goodwill, patent rights, etc.,

ii. Liability:

Liabilities are debts. It consists of financial obligation of an Enterprise other than owner’s funds. Eg., Amount due to Creditors, Bank loan etc.,

iii. Capital :

It is the amount invested by the owner. It is also known as owners equity or Net worth.

Capital = Assets – liability


Explain the types of Assets and liability?


Assets are classified into Tangible Assets and Intangible Assets .

Tangible Assets: Which have physical Existences . e.g. Cash, Machinery, etc.,

Intangible Assets: Which have no physical Existences. e.g. goodwill, patent rights, etc.,


Liability are classified into Long-term liability and Short –term liability.

Long term Liability: Those debts which are payable after one year is long-term liability. For eg Debentures, etc. issued by the company.

Short term liability: Those debts which are payable within one year is Short-term liability. For eg. Bills payable etc.,


IV. Creditors


Expenditure: It is the amount spent for getting something ( benefit/services) in return. e.g., Salary paid, goods purchased, purchases of Machinery etc., Expenditure can be Capital Expenditure and Revenue Expenditure

Capital Expenditure: If the benefit of an expenditure is less than a year (e.g., Rent Paid) Revenue Expenditure: If the benefit of an expenditure is more than a year

(e.g., Machinery Purchased)

Stock: It is the unsold goods in the business.

Opening Stock : Stock of goods at the beginning
  Closing Stock: Stock of goods at the end.

Debtors: Debtors are the persons who buy goods on Credit from the business without paying the money immediately but promise to pay in future (I.e. Receives the benefit & promise to pay the money in future)

Creditors: Creditors are the persons who sold goods on Credit to the business without receiving the money immediately but in future. ( i.e. Gives the benefit the receives the money in future)


List out the features of Accounting information?

The accounting information should possess the characteristic of Reliability
  Under stability



Explain the features of accounting information?


The accounting information must be reliable. It should be free from error and bias. It should be verifiable by independent parties and be neutral and faithful.


The accounting information is relevant only when it is received at right time and enables in prediction about the outcome of past /present / future events.

Under stability:

It means the accounting information must interpret accounting information in the same sense as it is prepared and conveyed to them. Account should convey the information in an effective manner without sacrificing relevance and reliability.


Comparisons of results among different accounting periods can be significant and meaningful only when consistent practices were followed in ascertain them. .i.e. It must belong a common period and use common unit of measurement etc.,

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