6. JAIIB-Accounting and Finance for Bankers-MOD-B- Definition, Scope and Accounting Standards

Unit – 6 : Definition, Scope and Accounting Standards

                Accounting is often called the language of business. Book-keeping and Accounting not one and the same – Book-keeping means recording the business Transactions.  Accountancy means compilation of accounts in such a way that one is in a position to know the state of affairs of the business.

1. Accounting is language of business.
2. Communicate the result of business operations and   its other aspects.
3. Accounting  is  an 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 financial character and interpreting  the results thereof.

Definition & scope of book-keeping

1. Book keeping is merely recording the business transactions  in books and ledgers
2. Accountancy is wider concept: compilation of accounts in such a way that one is in a position to understand state of affairs of business.
3. Users of financial statements are income tax department, S.T. department, shareholders, investors, banks and FIs and so on.
4. It is in  the interest  of all that financial statements reflect true and fair view of state of affiairs of a business  entity.

Accountancy involves:

1. Systematic classification of business transactions  in terms of money and financial character.
2. Summarizing  : trial balance  and b/s
3. Interpreting the financial transactions.

Financial Statements:

                - Manufacturing Accounting.
                - Trading Account
                - Profit & Loss Account
                - Balance Sheet
                - Funds Flow (Changes in Financial Position)
                - Cash Flow Statement

Purpose of accountancy

1. To keep a systematic record
2. To ascertain the results of operations
3. To ascertain financial position  of business.
4. To facilitate rational decision making
5. To satisfy requirement of law and useful  in many respects.

Basic objective of Accountancy- to provide information to various users.

                Income Tax Authorities
                Sales Tax Authorities
                Share holders
                Investors
                Business Associates
                Directors
                Banks for lending purpose

Purpose:
                - To know the Profit & Loss
                - To know the Financial position & Liabilities position
                - To interpret the Financial Position

Objectives:
                - To keep a systematic record
                - To ascertain the results of the operations
                - To ascertain the financial position of business
                - To facilitate rational decision-making
                - To satisfy the requirements of law

Advantages:
                - For Economic Decisions
                - To provide information to Investors
                - To compare the financial position

Types of Accounting:
                - Financial Accounting
                - Cost Accounting
                - Management Accounting
                - Social Responsibility Accounting
                - Human Resource Accounting
                - Inflation Accounting

Concepts  of Accountancy

Cost Concept:

1. Business transactions are recorded in books  at cost price.
2. Fixed assets are kept at cost of purchase and not at their market price.
3. Every transaction is recorded with present value and not any future value.
4. Unrealized gains are ignored.
5. Cost of an asset that has long but limited life is systematically reduced by a process called depreciation. But such depreciation has no relation to market value of asset.

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