Page 13 - ISCDEBK-XI

1.2 Double Entry Book Keeping—ISC XI
• Characteristics of Accounting. 1. Accounting is an art as well as a science. 2. Accounting records
only those transactions and events which are of financial character. 3. Accounting records the transactions
and events in terms of money. 4. Functions of Accounting: Identification, Recording, Classifying, Summarising
and interpreting. 5. Service activity.
• Objectives of Accounting. 1. Maintaining Proper Accounting Records, 2. Determining Profit earned or Loss
incurred, 3. Determining Financial Position, 4. Facilitating Management, 5. Providing Accounting Information
to Users.
• Accounting Cycle. 1. Financial Transactions, 2. Recording, 3. Classifying, 4. Summarising, 5. Analysis and
Interpretation, 6. Communicating.
• Advantages of Accounting. 1. Financial Information about Business, 2. Assistance to Management,
3. Replaces Memory, 4. Facilitates Comparative Study, 5. Facilitates Settlement of Tax Liability, 6. Facilitates
Loans, 7. Evidence in Court, 8. Facilitates Sale of Business, 9. Assistance in the event of Insolvency,
10. Helpful in Partnership Accounts.
• Limitations of Accounting. 1. Accounting is not fully exact. 2. Accounting information is not realistic.
3. Accounting ignores the qualitative elements. 4. Accounting ignores the effect of price level changes.
5. Accounting may lead to window dressing.
• Users of Accounting Information. Internal users and External users.

Parties Areas of Interest

1. Owners or Investors (i) Profitability, (ii) Financial Position, (iii) Future Prospects.
2. Management (i) Profitability in Relation to Investment, (ii) Managerial Decisions,
(iii) Liquidity of the Concern.
3. Suppliers or other Creditors (i) Profitability, (ii) Financial Position.

4. Lenders (i) Profitability, (ii) Financial Position.
5. Employees and Trade Unions Profitability.
6. Government and its Authorities (i) Profitability, (ii) Financial Position, (iii) Tax Liability.

7. Researchers (i) Accounting Theory, (ii) Business Practices, (iii) Future Profitability.
8. Society or Public (i) Protecting Environment, (ii) Indirect Contribution for Betterment.

• Branches of Accounting. 1. Financial Accounting, 2. Cost Accounting, 3. Management Accounting.
• Systems of Accounting. 1. Double Entry System, 2. Single Entry System.