Meaning and Scope of Accounting
Learning Objectives:
Understand the meaning and significance of accounting.
Understand the meaning of book keeping and the distinction of accounting with book keeping.
Appreciate the evolutionary process of accounting as a social science.
Explain sub fields of accounting.
Identify the various user groups for whom accounting information is to be generated.
Understand the relationship of accounting with economics, statistics, mathematics, law and management.
Explain the limitations of accounting.
Appreciate the enlarged boundary of accounting profession and the areas where in a accountant plays an important role rendering useful services to society.
Definition
Every individual performs some kind of economic activity. A salaried person gets salary and spends to buy household goods and dressing materials, for children’s education, construction of home, etc. A sports club formed by a group of individuals , a business run by an individual or a group of individuals, a local authority like Bhurhath Bangalore Mahanagara Palike, Bangalore Development Authority, governments, either central or state, all are carrying some kind of economics activities. Not necessarily all the economic activities are run for any individual benefits such economics activities may create social benefit i.e. benefit for the public, at large. Anyway such economics activities are performed through ‘transaction and events’. Transaction is used to mean ‘a business, performance of an act, an agreement’ while event is used to mean ‘a happening, as a consequence of transactions a results.
An individual invests Rs. 200,000 for running a FMCG business. On 1st February, he purchases goods for Rs. 115,000 and sells for Rs. 147,000 during the month of February. He pays shop rent for the month Rs. 5,000 and finds that still he has goods worth Rs. 15,000 in hand. The individual performs an economic activity. He carries on a few transactions and encounters with some events. Is it not logical that he want to know the results of his activity?
We see that the individual, who runs the FMCG business, earns a surplus of Rs. 42,000
Goods sold | 147,000.00 | |
Goods in Hand | 15,000.00 | |
Total | 162,000.00 | |
Less: Goods Purchased | 115,000.00 | |
Shop Rent Paid | 5,000.00 | 120,000.00 |
Surplus | 42,000.00 |
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