BCOM 1st Year Meaning And Scope Of Accounting Short Question Answer Notes

Q.4. What are the various branches of accounting?(2014)

Ans. There are several branches of accounting which can be classified as follows:

1. Financial Accounting: The financial accounting is primarily concerned with recording financial transactions and preparation of financial statement and their communication to the interested parties.

2. Cost Accounting: It is that branch of accounting, which deals with classification, recording, allocation of expenditure for the determination of the cost of products and services and for the presentation of suitably arranged data for the purpose of control and guidance of the management.

3. Management Accounting: Management accounting is the presentation of accounting and control information in a form which assist management in the formulation of policies and in decisionmaking on various matters related with operation of business enterprise,

4. Inflation Accounting: Inflation accounting is concerned with the adjustment in the values of the business assets and of profit in the light of changes in the price level. It has been defined by AICPA as a system for accounting which purports to record as a built-in mechanism of all economic events in terms of current cosť.

5. Social Responsibility Accounting: Social responsibility accounting includes accounting and reporting of social costs and benefits both in quantitative as well as qualitative terms of a business enterprise.

6. Tax Accounting: Many taxes are imposed for the purpose of government working in India and other countries like income tax, sales tax, wealth tax, gift tax, etc. A different type of accounting is used for tax arrangements. Accounting maintained according to tax arrangements is called tax accounting.

7. Human Resource Accounting: It is that branch of general accounting wherein human resources like efficient, knowledgeable, trained and committed employees are accorded recognition as assets and are valued in accounts book alike other physical resources.

8. Environment Accounting: Environment accounting is a new concept. It is a system of maintaining accounts regarding effects of activities of business entity on the environment.

Q.5. Discuss the advantages of accounting.

Ans. Advantages of Accounting: Accounting, as we know, is the systematic record of all business transactions of financial nature with a view to understand the result of the business, review the economic situations and to interpret the performance.

1. Replacing Memory: Business transactions are innumerable, varied and complex, as such it is quite impossible to memorise each and every transaction. Accounting records these transactions in writing and thus, it is not necessary that the businessman should memorise all the transactions.

2. Calculating the Performance of Business: Accounting keeps proper and systematic record of all business transactions. Income statements are prepared with these records and we are able to know the profit earned and loss suffered by the business. Trading account is prepared to find gross profit or loss of the firm. Net profit can be known by preparing profit and loss account.

3. Documentary Evidence: Accounting records can be used as an evidence in the court to substantiate the claim of business. These records are based on documentary proof. Every entry is supported by authentic vouchers. This is why, the court accepts these records as evidence.

4. Assessing the Financial Position of the Business: Financial position of the business is displayed through position statement, i.e. balance sheet of the business. The statement is prepared at the end of the accounting year and reflects the true position of assets and liabilities of the business on a particular date.

5. Help in Comparative Study: When a business concern has record of the transaction of its business for every year, it can compare the result of its business from year to year and ascertain the progress of its business.

6. Useful for Future Planning: With the help of ascertaining records, a business concern can prepare wise plans for the future use.

7. Information about Debtors and Creditors: Accounting records will disclose the amount due to a business and the person from whom the amount is due. Similarly, bookkeeping records disclose the amount due from the business and the persons to whom the amounts are due.

8. Preventing and Detecting Frauds: The proper accounting system and effective arrangement of internal checks prevents leakage of goods and cash. In case cheating takes place, theft or embezzlement Es made and fraud committed, accounting helps in detection of these losses and also fixes responsibility For it.

9. Helpful to Management: Accounting is useful to the management in various ways. It enables he management to assess the achievement of its performance. Actual performance can be compared vith the desired performance or with the performance of previous year.

The weakness of the business can be identified and corrective measures can be applied to remove them.

Q.6. What are the limitations of accounting? 

Ans. Accounting has the following limitations:

1. Incomplete Information: Accounting records only those transactions which are of financial ature. It records only the quantitative aspect of our transaction. Thus, accounting cannot record the

non-financial transactions such as change in economy, government policy, competition in the market etc are not recorded in accounting, though they affect the financial soundness of the business.

2. Inexactness: Accounting calculates profit or loss of the business on the basis of real and assumed estimation Accounting makes the valuation of stock, determines the method of depreciation and maintains various reserves and provisions in any way, they like. Different firms adopt the different methods, so the result of the business will change with the change in practice.

3. Representing Valueless Assets: There are certain assets which do not have real value but they are shown in our balance sheet. These assets are patents, trademark, goodwill, discount on issues of shares, etc. Showing these assets in the books of accounts, makes its result doubtful.

4. Unsuitable for Forecasting: Financial accounting are only a record of past data, whereas continuous changes take place in the demand of the product, position of competition, consumer performance, etc. As such the financial analysis based on past events has to be suitably modified before it can be used for forecasting,

5. Manipulation: Accounting results are based upon the information supplied to it. The management may be biased and feed manipulative information to prove its point of view. Accounting can show the result of business, as desired by the owners of the business.

6. Not Free from Bias: In many situations, the account has to exercise his personal judgement and make a choice out of various alternatives available, e.g. choice in the method of depreciation, FIFO. LIFO, etc. Thus, accounting is not free from bias,

7. Ignorance about the Present Value of Business: While maintaining books of accounts we follow going concern concept, ie the business will be carried on for indefinite period. With this purpose, we show the value of our assets in the balance sheet at its books value not the market value. So, accounting, in this way, fail to show the present sales value of the business.