Accounting is an important service activity in business and is concerned with collecting, recording, evaluating and communicating the results of past events. The history of accounting development reflects its changing role in response to the changing business and social needs. The central purpose of accounting is to make possible the periodic matching of costs (efforts) and revenues (accomplishments). This concept is the nucleus of accounting theory.
SCOPE OF ACCOUNTING includes
- Data creation and collection: After the historic data has been collected, it is recorded in accordance with generally accepted accounting theory.
- Data evaluation includes evaluating the performance of business, analyzing the flow of funds, and analyzing the accounting information for decision-making purposes. It has another purpose called auditive work which focuses on verification of transactions as entered in the books of account and authentication of financial statements.
- Data reporting: Data reporting consists of two parts-external and internal. External reporting refers to the communication of financial information (viz., earnings, financial and funds position) about the business to outside parties, e.g., shareholders, government agencies and regulatory bodies of the government. Internal reporting is concerned with the communication of results of financial analysis and evaluation to management for decision-making purposes.
The evolution of accounting can be distinguished through
- Stewardship Accounting - Wealthy people employed `stewards' to manage their property. It is associated with the need of business owners to keep records of their transactions, the property and tools they owned, debts they owed, and the debts others owed them.
- Financial Accounting – It addresses the need of the society to mobilize the savings and channel them into profitable investments. Investors, whether they are large or small, must be provided with reliable and sufficient information in order to be able to make efficient investment decisions
- Cost Accounting - Cost accounting is concerned with the application of costing principles, methods and techniques for ascertaining the costs with a view to controlling them and assessing the profitability and efficiency of the enterprise.
- Management Accounting - Its emphasis on detailed information for decision-making provide a tremendous impetus to the development of management accounting. Management accounting is concerned with the preparation and presentation of ac-counting and controlling information in a form which assists management in the 'formulation of policies and in decision-making on various matters connected”. Management accounting has thus shifted the focus of accounting from recording and analysing financial transactions to using information for decisions affecting the future. In this sense, management accounting has a vital role to play in extending the horizons of modern business. While the reports emanating from financial accounting are subject to the conceptual framework of accounting, internal reports-routine or non-routine are free from such constraints.
- Social Responsibility Accounting - Social responsibility accounting widens the scope of accounting by considering the social effects of business decisions; in addition to the economic effects. The role of business in society is increasingly coming under greater scrutiny. The management is being held responsible not only for efficient conduct of business as expressed in profitability, but also for what it contributes to social wellbeing and progress.
- Human Resource Accounting - It is concerned with "the process of identifying and measuring data about human resources and communicating this information to interested parties". In simple words it involves accounting for invest-ment in people and replacement costs as well as accounting for the economic values of people to an organization.
- Inflation Accounting - It aims at correcting the distortions in the reported results caused by price level changes. Generally, rising prices during inflation have the distorting influence of overstating the profit. Various approaches have been suggested to deal with this problem.
Accounting can be perceived as an information system which has its inputs, processing methods and outputs. The usefulness of accounting lies in its capacity to provide information to various stakeholders in business so that they could arrive at the correct decisions. It has its inputs (raw data), processes (men and equipment), and outputs (reports and information). If we consider accounting as an information system, then we are in a position to make some important observations. First, the goal of the system is to provide information which meets the needs of its users. If we can correctly identify the needs of the users, we are then able to specify the nature and character of the outputs of the system. Secondly, it is the output requirements that determine the type of data which would be selected as the inputs for processing into information output.
Accountant plays very important role in an organization. He keeps accounts and helps controlling the accounting function. He keeps conscience of the organization and acts as fiscal adviser. His primary duties are concerned with information management for internal and external use. He produces income statement and a balance sheet for an accounting period and maintains all supporting evidence and classified facts that lead to the final accounting statements. Accountant verifies, authenticates and certifies the accounts of an entity.
The top accounting personnel are designated with various nomenclature. The practice in this regard differs in different companies. The organizational setting for accounting and finance function may also vary in different organizations, depending upon their peculiarities, nature and size of business, technology and structural form. At the helm of affairs is usually the Director of Accounts and Finance who is a member of the Board of Directors. Fle is assisted by a General Manager who in turn is helped by Deputy General Managers incharge of various sub-functions like, accounts, finance, internal audit, and data processing, etc. Each of the sub-functions is further sub-divided into activities which are the responsibility of a subordinate manager.