Nature and Purpose of Accounting

2851 WordsNov 13, 200712 Pages
Financial Accounting THE NATURE AND PURPOSE OF ACCOUNTING In the present era most of the business as well as non-business operations are carried out through organizations (mostly by limited liability companies (also known as joint stock companies), societies and charitable organisation), rather than by people working as individuals. Such organization consist of group of people working together for common goal. To accomplish its objectives, the organization uses resources –material, labour and various types of services. It is imperative that such work should be carried out in the most effective and efficient manner since resources are both costly as well as scarce. the people in an organization need information about…show more content…
(b) To provide information to potential investors in evaluating the earning power of the enterprise. (c) To provide economic information to the owners to judge the management on its stewardship of the resources of the enterprise and the achievement of the corporate objectives. (d) To provides information, which enables the investors to compare the performance with other undertakings and take appropriate decision regarding retention or dis-investment of their holdings. The comparison may be inter-period also. Thus comparability is another important objectives of financial statements. (e) To provide information regarding accounting policies and contingent liabilities of the enterprise, as these have a bearing in predicting, comparing and evaluting the earning power of the enterprise. BASIC ACCOUNTING CONCEPTS: The principles of accounting are built on a foundation of a few basic concepts. In order to understand accounting, one must understand what the underlying concepts are. Such concepts are also known by other names like postulates, basic assumptions, basic features, underlying principles, fundamentals or conventions. However, they all mean and refer to one and the same thins. In this write-up, we shall try to understand basic eleven concepts as follows: Entity. Money

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