Question

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Answer the following questions 5 x 3= 15 1. Why accounting is called the language of Business? 2. Why is it necessary for accountants to assume that a business entity will remain a going concern and why should business concern follow matching concept. 3. Write three main differences between Book keeping and Accounting 4. Discuss the importance of financial statements to a company and its investors and creditors and why management may take steps to improve the appearance of the company in its financial statements. 5. Identify and discuss several professional organizations that help play important roles in preparing and communicating accounting information

Answer 1

1. Accounting is called the language of business because it is the language that communicates the organization's financial position and information to its stakeholders. Accounting accumulates, classifies and summarizes the organization's financial data in a meaningful and period reports, namely financial statements. Accounting is a means of communication of the financial and economic information of the business entity and hence is called the language of business.

2. Going Concern if one of the fundamental assumptions in the preparation of financial statements. It proves the business is a separate legal entity, apart from its stakeholders and continues in the long run. It proves the stability of the business enterprise. It is necessary to follow going conern assumption because the financial stability of the business affects the stock prices and also the way in which the assets and liabilities are recorded in the books of accounts.

Matching concept recognises revenue and expenses during the same period. Accountants follow matching concept to ensure accurate reporting of the revenues, expenses and the net income or loss from the business operations and hence avoids misstatement of earnings for the period.

3. 3 Differences between Book Keeping & Accounting:

S.No.	Particulars	Book Keeping	Accounting
1.	Scope	Book Keeping has comparitively smaller scope.	Accounting has a wider scope.
2.	Process	Book Keeping involves recording and classification of financial transactions.	Accounting involves summarizing and analysis of the recorded transactions.
3.	Stage	Book Keeping Process is the preliminary stage for the accounting process to start. Hence, it is the first stage.	Accounting process starts only after book keeping is completed. Hence, it is the latter stage.

4. Financial statements are important as those are the reports that potray the company's financial and economic position. They contain significant information about the company's financial performance during the period. Financial statement are important to management to take various decisions, to shareholders to evaluate the return on their investments, to the creditors to check the financial viability of the company and to the employees and the general public as such.

Appearance of the financial statements are as important as the information contained in them. This is because most of the users of the financial statements are financial illiterates and they need information presented in an understandable format to apprehend in a better manner.

5. The Accounting Associations define the Generally Accepted Accounting Principals (GAAP) and the various accounting standards for uniform presentation of the financial statements by various business enterprises and hence enable comparison of financial data.