3. ACCOUNTING:
Definition: Accounting may be defined as
process of identifying, measuring, recording,
communicating the economic events of an
organisation to the interested users of the
information.
OR
Accounting is the art of recording,
classifying and summarising the business
transaction, which help in preparing
summarised record and finding out profits
and losses and preparing balance sheet.
4. Objectives:
1. To maintain record of transactions of business.
2. To provide knowledge about creditors, debtors &
overall financial
positions.
3. It provides information regarding total purchases,
total sales and
closing stock.
4. It provides information to prepare profit and loss
account and
balance sheet. To find out net profit or loss
made during a financial
year.
5. To provide knowledge about capital, assets &
liabilities of firm at
5. Limitations of Accounting:
1. The scope of accounting is restricted to the
limits laid down by various laws.
2. The transactions which cannot be
expressed in terms of money are not recorded
in accounting.
3. In accounting cost concept is followed. The
changing prices are not taken into account.
4. Convention of materiality is followed in
accounting. Hence all material items must be
disclosed in financial statement.
5. The accounting policies are framed by the
accountants according to their own individual
6. Branches of Accounting: There are five main
branches-
1. Financial accounting
2. Cost accounting
3. Management accounting
4. Tax accounting
7. 1) Financial accounting:
It is mainly concerned with
recordkeeping directed towards the
preparation of Profit and Loss
Account and Balance Sheet.
The main purpose of financial
accounting is
a. To prepare the necessary accounts
and balance sheet.
b. To record the transactions which
concern or effect the business.
c. To apprise the owners of the business
8. 2) Cost accounting: It is a systematic
procedure for determining the unit cost
of output produced or services rendered.
The main function of cost accounting is
to find out the cost of product and to
help the management in controlling its
cost.
3) Management accounting: It is
concerned with the supply of
information which is useful to the
management in making decisions for
smooth and efficient running of its
9. 4) Tax accounting: The branch of
accounting which is used for tax
purpose is known as tax accounting.
Income tax & Sales tax are computed on
the basis of this accounting.
5) Social responsibility accounting: It
is the process of identifying, measuring
and communicating the contribution of
the business to the society, which
consists of providing employment,
financial and manpower support for
10. IMPORTANT QUESTIONS:
1) Define the term accounting; enlist
the main objectives of Accounting.
2) Explain various branches of
Accounting.
3) Explain limitations of Accounting
