Question

Give short answers for the following questions: (15)
i. Define ‘Accounting’.
ii. Explain the primary objectives of accounting.
iii. Discuss the limitations of accounting.
iv. What types of activities are included in data evaluation?
v. Outline the main functions of accounting considering the following groups;
 Lenders
 Employees
 Customers
Please suggest information that each one is likely to need from accounting
statements and reports.

Answer 1

Answer:

1. Definition of accounting : Accounting is the systematic record of all financial transaction at a particular place is called accounting.

2. Primary objective of accounting:   

•   To ascertain the true financial value of our business.
• To see the growth of business.
• To know the real sales and purchases of business.
• To ascertain the flow of cash for determining the working capital requirement of business.
• Through book keeping we can file suit to the third party and vice-versa.
• To ascertain the net worth of business at the end of financial year or as when we want,etc.

3. Limitations of accounting :

• It only record financial transaction .
• It ignore Time value of money .
• There are a lot principal's so hard to harmonize with other business principal's.
• Accounting only consider transactions historical cost only.
• Ignore real value of transaction.

4. Following activities are involved in data evaluation.

• We can analyse data from its original invoice .
• after that we need to check its all impact on books of account with correct figure.
• if the data is of revenue nature we can check it from trading and profit & loss account but if it of capital nature then we can verify the data from balance sheet.
• for more accuracy we can check respective ledger head of data.
• we can conform from the third party to increase the accuracy of data.

5. Functions of accounting for :

• Lenders: Lenders of business are interested in knowing the business growth and earning because they are investing money to the business.
• Employees: Accounting should be such that they can get true picture of its financial condition because they investing their time and energies into business.
• Customer: Accounting should function as simple as possible so they can reach to each and every customer, because they are the most valuable asset of every business.

Information needed by following persons from accounting statement and reports:

• Lenders: They seek the growth of business and their liabilities and their payout
• Employees: They need to see their payments and business growth.
• Customer: They are interested in real cost of services they are getting from business so true and fair view of financial statement and report .