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It is as old as money itself.

In India CHANAKYA is given credit for his book ARTHASHASTRA in which hehas emphasized the existence and need of proper accounting and auditing.However Lucas Pacioli is known as father of accounting for his workpublished in Italy during 18th century in De Computise Scrupturise.

The modern system of accounting based on the principles of Double EntrySystem owes its origin to Lucas Pacioli, who first published the principles ofDouble Entry System in 1494 at Venice in Italy in his book .Accounting now is regarded as an information system and has become anintegral part of the Management Information System.

About Accounting- ItsEmergence

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Need of Accounting

A person (an entrepreneur/ businessman) who is runninga business, must know

(1) What he owns?(2) What he owes?(3) Whether he has earned a profit or suffered a loss on

account of running a business?(4) What his financial position is?

-regarding his ability to meet all his commitmentsor becoming bankrupt.

Thus, there is need of accounting if business is at small

or large scale, domestic or international.

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Meaning of Accounting

The main purpose of accounting is to ascertainthe profit or loss incurred during a specifiedperiod, generally one year, to show the financialcondition of the business on a particular date andto have control over the property of theenterprise.

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Definition of Accounting

American Institute of Certified Public Accountants has definedfinancial accounting as the art of recording, classifying andsummarizing, in a significant manner and in terms of money,transactions and events which are in part, at least, of a financialcharacter, and interpreting the results thereof.

American Accounting Association has defined accounting as the process of identifying, measuring andcommunicating economic information to permitinformed judgments and decisions by users of the

information.

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Attributes of Accounting

1. It is a language of business. As every language serves as a meansof communication, accounting also serves this function andcommunicates the results of business operations to variousparties like proprietor, creditor, investors, govt. & other agencies.

2. It is the art as well as science of recording and classifyingbusiness transactions and events.

3. The transactions or events of a business must be recorded inmonetary terms.

4. It is the art of making summaries, analysis and interpretation ofthe business financial transactions.

5. The result of such analysis must be communicated to the persons

who are to make decisions or form judgments.

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Objectives of Accounting

To Keep Systematic records- (records of assets and liabilities,because large no. of transactions can not be stored in human memory)

To protect business properties-( by assuring that the funds are notkept unnecessary and idle and there is balance between receivables andpayables)

To ascertain the operational profit & financial position ( financial strength and weakness can be ascertained by preparing P/L a/c&balance sheet)

To communicate to the users- ( External & Internal)

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Types of Accounting

I. Financial Accounting :

II. Cost Accounting :

III. Management Accounting :

IV. Corporate Accounting:

V. Responsibility Accounting:VI. Human Resource Accounting:

VII. Social Accounting:

VIII.Forensic Accounting:

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Users of AccountingInformation

The basic objective of accounting is to provideinformation to its users. These users of are classifiedinto the following two categories.

(i) External users of accounting information(ii) Internal users of accounting information.

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External users ofaccountinginformation

External users arethose persons orgroups who areoutside the

organization for whomthe accountingfunction is beingperformed.a) Investors:

b) Creditors

Internal users ofaccountinginformation

Internal users ofaccounting informationare those persons orgroups which are withinthe enterprise.a) Owners/partners:

b) Management/Board ofdirectors:

c) Employees/officers:

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Advantages of Accounting

Assists the management-Facilitates to take decisionFacilitates to ascertain netresults of operationsFacilitates to replace the

human memoryHelps in ascertaining thevalue of businessActs as legal evidence

Helps in raising loans Helps in settlement of tax

liability Facilitates to comply with

legal requirements

Helps in ascertainingfinancial position Helps in comparative study Helps to have control over

assets

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Limitations of Accounting

Danger of Window Dressing; When management intentionally enter wrongand artificial figures, the income statement and balance sheet will fail to show true & fairpicture of the financial position of the organization.

Estimation and not real ; Financial statements are prepared on goingconcern basis, hence they show only the estimated periodic results and not the realposition of the organization

Ignores qualitative elements; Since the main job of accounting is confinedto the monetary matters only, the qualitative elements are generally ignored andavoided.

Ignores price level changes; If financial statements are prepared onhistorical cost basis the fixed assets are shown after deducting depreciation and not onreplacement value, it will not yield comparable results unless the price level changes aretaken into account.

Not free from bias; In many situations the accountant has to make a choice outof various alternatives available, hence the financial statements can not be said to be freefrom bias.