Accounting is a definite process of interlinked activities that begins with the identification of transactions and ends with the preparation of financial statements. Each step within the process of accounting generates information. Generation of information is just not an end in itself. It’s a means to facilitate the dissemination of data amongst varied teams of users. Such data enables the parties those who are interested to take appropriate decisions. Therefore, dissemination of knowledge is one of the essential perform of accounting. To be useful, the accounting information ought to ensure to:
• Provide info for making economic choices;
• Serve the customers who depend on financial statements as their principal source of knowledge;
• Provide information useful for evaluating and predicting the timing, amount and uncertainty of potential cash-flows;
• Provide info for judging management’s ability to utilise resources successfully in assembly goals; provide factual and interpretative data by disclosing underlying assumptions on matters subject to interpretation, evaluation, prediction, or estimation; and
• Provide information on activities affecting the society.
The function of an accountant in generating accounting info is to screen, observe and recognise transactions and events to measure and process them, and thereby compile reports comprising accounting information which are communicated to the users. These are then interpreted, decoded and used by management and different consumer groups. It have to be ensured that the knowledge provided is relevant, adequate and reliable for choice-making. The apparently divergent needs of inner and external customers of accounting information have resulted in the development of sub-disciplines within the accounting discipline namely, financial accounting, cost accounting and administration accounting. Financial accounting assists for keeping a scientific file of monetary transactions the presentation and preparation of monetary reports in an effort to arrive at a measure of organizational success and financial soundness.
It pertains to the previous period, serves the stewardship function and is monetary in nature. It is primarily involved with the provision of financial info to all stakeholders. Cost accounting assists in analyzing the revenue and expenditure for ascertaining the cost of various products manufactured or services provided by the firm and fixation of costs thereof. It also helps to manage the prices and providing vital costing data to management for determination-making. Management accounting deals with the provision of required accounting info to people within the organisation to enable them in planning, resolution-making, and controlling business operations.
Administration accounting draws the relevant data mainly from price accounting and financial accounting which helps the management in budgeting, assessing profitability, taking pricing decisions, capital expenditure choices and so on. Besides, it generates other information which relates to the longer term and is related for determination-making within the organisation. Such info includes: money flows, sales forecast, manpower wants, buy requirement, environmental data about effects on water, air, land, natural resources, flora, fauna, social responsibilities, human health, etc. Because of this, the scope of accounting has turn into so vast, that new areas like human resource accounting, social accounting, responsibility accounting have additionally gained prominence.
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