Benefits from Accounting

ACCOUNTING REPLACES HUMAN MEMORY

ACCOUNTING HELPS IN KNOWING PROFIT

ACCOUNTING HELPS IN KNOWING FINANCIAL POSITION OF ORGANISATION

ACCOUNTING HELPS IN KNOWING LIST OF CREDITORS AND DEBTORS
ACCOUNTING HELPS IN PAYING TAXES

ACCOUNTING HELPS IN RAISING MORE FUNDS BY SUPPLYING INFORMATION TO INVESTORS AND CREDITORS

ACCOUNTING HELPS IN PLANNING FOR EXPANSION
ACCOUNTING HELPS IN GETTING BANK LOANS



Perhaps the primary benefit of principles-based accounting rests in its broad guidelines that can be applied to numerous situations. Broad principles avoid the pitfalls associated with precise requirements that allow contracts to be written specifically to manipulate their intent. A 1981 study sponsored by FASB found evidence that managers purposefully try to structure leases as operating leases to avoid incurring additional liabilities. Providing broad guidelines may improve the representational faithfulness of financial statements.
In addition, principles-based accounting standards allow accountants to apply professional judgment in assessing the substance of a transaction. This approach is substantially different from the underlying “box-ticking” approach common in rules-based accounting standards. FASB Chair Robert Herz has stated that he believes the professionalism of financial statements would be enhanced if accountants are required to utilize their judgment instead of relying on detailed rules.

Firstly, the managers of the business will want to know how things are going. They need financial information in order to plan for the future; they then need more up-to-date information in order to check whether actual performance is on target. This process is known as controlling the costs and finances. In accounting it is known as management accounting. So, management accounting is done by the managers, for the managers, for the purposes of planning and control.

Secondly, there are several groups of people who may have an interest in the finances of the business. The law says that they have a legal right to certain information. The whole process of providing this information (and of maintaining a book-keeping system capable providing it) is known as financial accounting.
Posted by moeid at 2:38 AM 0 comments
Wednesday, February 17, 2010
Application and use of Accounting Techniques


Uses of Accounting

Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information.

(1) How good or bad is the financial condition of the business?

(2) Has the business activity resulted in a profit or loss?

(3) How well the different departments of the business have performed in the past?

(4) Which activities or products have been profitable?

(5) Out of the existing products which should be discontinued and the production of which commodities should be increased.

(6) Whether to buy a component from the market or to manufacture the same?

(7) Whether the cost of production is reasonable or excessive?

(8) What has been the impact of existing policies on the profitability of the business?

(9) What are the likely results of new policy decisions on future earning capacity of the business?

(10) In the light of past performance of the business how it should plan for future to ensure desired results ?

Above mentioned are few examples of the types of questions faced by the users of accounting information. These can be satisfactorily answered with the help of suitable and necessary information provided by accounting.

Besides, accounting is also useful in the following respects :-

(1) Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records obviate the necessity of remembering various transactions.

(2) Accounting record, prepared on the basis of uniform practices, will enable a business to compare results of one period with another period.

(3) Taxation authorities (both income tax and sales tax) are likely to believe the facts contained in the set of accounting books if maintained according to generally accepted accounting principles.

(4) Cocooning records, backed up by proper and authenticated vouchers are good evidence in a court of law.

(5) If a business is to be sold as a going concern then the values of different assets as shown by the balance sheet helps in bargaining proper price for the business.


Every organisation needs to be accountable to its members for the use of funds within the organisation. The members of the organisation place their trust in the executive that funds will be used in an honest way to achieve the goals of the organisation.

In the same way that you need to keep records of meetings, letters and membership you also have to keep the records of the organisation’s money. Accounting is the system for keeping the records [books] of all the money you collect and all the money that you spend

Books have to be properly kept for four reasons:

To make sure that the organisation’s executive committee and members can understand exactly what has happened to the organisation’s money.
To help the organisation to make realistic plans of what it can spend and to monitor how the spending compares with the budget.
For accountability and transparency – most organisations use public or donor money and should be able to show how every cent was spent
For security to avoid losing money to mismanagement, corruption or theft