1. Introduction of Accounting

WHAT IS ACCOUNTING

Accounting is a process of identifying the events of financial nature, recording them in journal, classifying in their respective ledgers, summarizing them in Profit and Loss Account and Balance Sheet and communicating the results to the users of such information. The users of accounting information include owners, creditors, bank and financial institutions, employees, government, etc.

According to the American Accounting Association

“Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”

Economic Events:-

Business organization involves economic events. An economic event is known as a happening of consequence to a business organization which consists of transactions and which are measurable in monetary terms. For example, purchase of machinery, installing and keeping it ready for manufacturing is an event which comprises number of financial transactions such as buying a machine, transportation of machine, site preparation for installation of a machine, expenditure incurred on its installation and trial runs.

The following are the examples of such transactions:
Sale of merchandise to the customers.
Rendering services to the customers by ABC Limited.
Purchase of materials from suppliers.
Payment of monthly rent to the landlord.

2. Identification, Measurement, Recording & Communication:-

Identification:- It means determining what transactions to record, i.e., to identity events which are to be recorded. It involves observing activities and selecting those events that are of considered financial character and relate to the organization. The business transactions and other economic events therefore are evaluated for deciding whether it has to be recorded in books of account. For example, the value of human resources, changes in managerial policies or appointment of personnel are important but none of these are recorded in books of account.
Measurement:- It means quantification (including estimates) of business transactions into financial terms by using monetary unity, viz. rupees and paise as a measuring unit. That is why important items like the appointment of a new managing director, signing of contracts or changes in personnel are not shown in the book of accounts.
Recording:- Once the economic events are identified and measured in financial terms, these are recorded in books of account in monetary terms and in a chronological order.
Communication:- The economic events are identified, measured and recorded in order that the pertinent information is generated and communicated in a certain from to management and other internal and external users. The information is regularly communicated through accounting reports.

Accounting as a source of information

Accounting is a definite processes of interlinked activities, that begins with the identification of transactions and ends with the preparation of financial statements. Every step in the process of accounting generates information. Generation of information is not an end in itself. To be useful, the accounting information should ensure to:

Provide information for making economic decisions;
Serve the users who rely on financial statement as their principle source of information;
Provide information useful for predicting and evaluating the amount, timing and uncertainty of potential cash-flows;
Provide information for judging management’s ability to utilize resources effectively in meeting goals;
Provide information on activities affecting the society.

Qualitative Characteristics of Accounting Information:- Qualitative characteristics are the attributes of accounting information which tend to enhance its understandability and usefulness. In order to assess whether accounting information is decision useful, it must possess the characteristics of reliability, relevance, understandability and comparability.

Reliability:- Reliability means the must be able to depend on the information. The reliability of accounting information is determined by the degree of correspondence between what the information conveys about the transactions or events that have occurred, measured and displayed.
Relevance:- to be relevant, information must be available in time, must help in prediction and feedback, and must influence the decisions of users by:

Helping them form prediction about the outcomes of past, present or future events;
Confirming or correcting their past evaluations.

Understandability:- Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them. The qualities that distinguish between good and bad communication in a message are fundamental to the understandability of the message.
Comparability:- It is not sufficient that the financial is relevant and reliable at a particular time, in a particular circumstance or for a particular reporting entity.

OBJECTIVES OF ACCOUNTING:-

As an information system, the basic objective of accounting is to provide useful information to the interested group of users, both external and internal. The necessary information, particularly in case of external users, is provided the form of financial statements, viz., profit and loss account and balance sheet.

Maintaining Accounting Records – The objective of accounting is to record financial transactions and events of the organization in the books of account in a systematic manner following the principle of accountancy.
Determining Profit or Loss – Another objective of accounting is to determine whether during the accounting period, the firm has earned profit or has incurred loss. For this purpose, a statement called as Income Statement or the Trading and Profit and Loss Account is prepared.
Determining Financial Position – Another objective of accounting is to determine financial position. It is known from the Balance Sheet, Which shows value of the assets on one side and liabilities on the other side. Financial position of the business is a relevant for the users of financial statements as is the income statements, Profit and Loss Account.
Facilitating Management – The Management often required financial information for decision-making, effective control, budgeting and forecasting. Accounting provides financial information to assist the management in discharging this function.
Providing Accounting Information To Users – Yet another objective of accounting is to provide accounting information to users, both internal and external, who analyze them according to their requirements.

Role of Accounting

For centuries, the role of accounting has been changing with the changes in economic development and increasing societal demands. It describes and analyses a mass of data of an enterprise through measurement, classification and summarization, and reduces those date into reports and statements, which show the financial condition and results of operations of that enterprise Hence, it is regarded as a language of business. It also performs the service activity by providing quantitative financial information that helps the users in various ways.

Basic Terms in Accounting

Entity:- Entity means a reality that has a definite individual existence. Business entity means a specifically identifiable business enterprise like Super Bazaar, Hire Jewellers, ITC Limited, etc. An accounting system is always devised for a specific business entity (also called accounting entity).
Transaction:- ‘Business Transaction’ means a financial transaction or economic event entered into by two parties that initiates the accounting process of recording it in the books of account of an enterprise. It is an agreement between two parties involving transfer or exchange of goods or services. Example of business transactions are sale of goods, purchase of goods. It has dual aspects or two sides- ‘Receiving’ called Debit and ‘Giving’ called Credit of the benefit.
Assets:- Assets are the properties (tangible assets and intangible assets) owned by an entity or enterprise. They are the economic resources of the business. Example of assets are land, building, machinery, furniture, stock, debtors, cash and bank balances, trademarks, copyrights, goodwill, etc.

Assets can be classified into:

Non-current Assets
Current Assets
Fictitious Assets

4. Liabilities:- Liabilities mean amount owed (payable) by the business. Liability towards the owners of the business is termed as internal liability. On the other hand, liability towards the outsiders, i.e. other than the owners is termed as external liability.

Liability classified into:

Non-current liability – Liabilities payable after 12 months from the date of Balance Sheet. That is non current liability. Example of Non-current Liability is long-term loans, debentures, etc.
Current Liability – Liabilities payable within 12 months from the date of Balance Sheet. That is current liability. Example of Current Liability is bills payable, short-term loans, etc.

5. Capital:- Capital is the amount invested in an enterprise by the proprietor. It may be in the form of money of assets having a monetary value. It is a liability of the firm towards the proprietor. It is so because under “Business Entity Concept”, business is separate and distinct entity from its owners.

6. Sales:- ‘Sales’ means sale of goods. The term ‘Sales’ include both cash and credit sales.

7. Revenue:- The amount of money that a producer receives in exchange for the sale of goods is known as revenue. In short, revenue means sales revenue. It is the amount received by a firm from the sale of a given quantity of a commodity at the prevailing price in the market.

8. EXPENSE:- Amount spent or incurred to earn revenue. Such as salaries, wages, rent, etc.

There are two type of expense:

Prepaid Expense – It is an Expense that has been paid in advance and the benefit of which will be available in the following year or years. E.g. advance rent, insurance premium.
Outstanding Expense – It is an expense that has been incurred but has not been paid. E.g. outstanding salary, rent, subscription.

9. EXPENDITURE:- Expenditure refers to payments made or liabilities incurred in exchange for goods or services. The term expenditure usually refers to capital expenditure, which is usually a one-time cost and is incurred to receive a long-term benefit, such as the purchase of a fixed asset. In accounting terms, expenditure increases the value of assets or reduces a liability

Expenditure may be categorised into:

Capital Expenditure – Amount spent or liability incurred for purchasing assets. It may be incurred to acquire tangible assets or intangible assets. Example of capital expenditure are purchase of machinery to manufacture goods, purchase of furniture. Capital expenditure is shown on the assets side of the Balance Sheet.
Revenue Expenditure – Amount spent or liability incurred for purchasing goods or services taken to earn revenue. It has direct relationship with revenue or with the accounting period, e.g. cost of goods sold, salaries, rent, electricity expenses, etc.
Deferred Revenue Expenditure – Expenses of revenue nature written off in more than one year. For example, large advertising expenditure that will give benefit for more than one accounting period is a Deferred Revenue Expenditure.

10. Profit:- Profit means income earned by the business from its Operating Activities, i.e., the activities carried out by the enterprise to earn profit. For example a plot was purchased at Rs 50,000 and three years later it was sold at Rs. 1, 50,000 then there is a profit of 1lakh.

Profit is further divided into:

Gross Profit– Excess of revenue over direct expenses.
Net Profit – Excess of total revenue and other income over total expenses.

11. GAIN:- A profit that arises from event or transaction which are incidental to business such as the sale of fixed assets, winning a court case, appreciation in the value of an assets A good example of gains in when you purchase like say a piece of land, house or security, and after some years you are able to dispose of at a price above the purchasing price.

12. Loss:- Loss is excess of expenses of a period over its revenues and other income. It decreases the owner’s equity. Money or money’s worth lost against which the firm receives no benefit, e.g., cash or goods lost in theft and loss arising from events of non- recurring nature, another e.g., a phone is bought at RS. 20,000 and a year later it was sold for RS. 12,000 then the seller made a loss Rs. 8

13. Discount:- It is the reduction in the price of goods or from the amount to be paid to a customer by the enterprise.

There are three discounts are as follow:

Trade Discount – Trade Discount is the reduction in prices by the seller to the purchaser of goods when they buy goods of certain quantity or value. Dales are recorded at net value, i.e., sales- trade discount.
Cash Discount – Cash discount is the discount allowed for timely payment of due amount. It is an expense for the party allowing the discount and income for the party receiving cash discount.
Rebate – Rebate is the discount allowed by the seller of goods to the purchaser for reasons other than for which trade discount or cash discount is allowed. It is allowed after the sale

14. Voucher:- Voucher is a document evidencing a business transaction. It flows from the above definition that when a transaction is entered into, evidence to that effect is also established. Such evidences are source documents. On the basis of source documents, a voucher detailing the accounts that are debited and credited is prepared.

15. Goods:- Goods purchased for resale or for manufacturing product. A Goods is a physical product capable of being delivered to a purchaser and involves the transfer of ownership from seller to customer. Goods also generally used to refer to commodities or items of all types, excepting serv

16. Drawing:- It is the amount withdrawn or goods taken by the proprietor or partner for personal use. For example if proprietor pays house rent, buy a car or pay children tuition fees or goes to the vacation using business capital then it is recorded as a reduction to the owner’s equity account or drawing.

17. Purchases:- ‘Purchases’ means purchase of goods or raw materials for resale or for manufacturing of goods. The term ‘purchase’ includes both cash and credit purchase of goods.

18. STOCK:- Stock refers to the total quantity of the commodity available with the producer for the present or future sale. Stock may be an opening stock and closing stock

Opening stock is the stock in hand in the beginning of accounting year. In other hand it is stock in hand at the end of the previous accounting year.
Closing stock is stock in hand at the end of the current accounting period.

19. DEBTOR:- A person or an entity from whom amount is receivable against sale of goods or service both (debtor is a person or an entity who owes amount to the enterprise against credit sales of goods and/or service rendered or both.)

20. CREDITOR:- A person or entity to whom amount is payable against purchase of goods and service or both. (Creditor is a person or an enterprise to which an enterprise owes amount against credit purchases of goods and/or services taken or both.)

Short Answers

Define accounting.

Ans.– Accounting is a process of identifying the events of financial nature, recording them in journal, classifying in their respective ledgers, summarizing them in Profit and Loss Account and Balance Sheet and communicating the results to the users of such information. The users of accounting information include owners, creditors, bank and financial institutions, employees, government, etc.

According to the American Accounting Association

“Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”

2. State the end product of financial accounting.

Ans.-

Income statements (Trading and/or Profit and Loss Account)- An income statement that includes Trading and Profit and Loss Account, ascertains the financial results of a business in terms of gross (or net) profit or loss.
Balance Sheet- It depicts the true financial positions of a business that provides required information like assets and liabilities of a business firm, to the users of accounting information like owners, creditors, investors, government, etc.

3. Enumerate main objective of accounting.

Ans. –

1. The main objectives of accounting are given below.
2. To keep a systematic record of all business transactions
3. To determine the profit earned or loss incurred during an accounting period by preparing profit and loss account
4. To ascertain the financial position of the business at the end of each accounting period by preparing balance sheet
5. To assist management for decision making, effective control, forecasting, etc.

6.To assess the progress and growth of business from year to year
7.To detect and prevent frauds and errors
8. To communicate information to various users

4. Who are the users of accounting information?

Ans.-

The five users who have indirect interest in accounting are given below.
Tread associations
Labour unions
Stock exchanges
Tax authorities.

5. State the nature of accounting information required by long-term lenders.

Ans. – Accounting information required by the long term lenders are repaying capacity of the business, profitability, liquidity, operational efficiency, potential growth of business, etc.

6. Who are the external users of information?

Ans. – External users of information are individuals or groups outside of a company who use its financial data to make decisions. Examples include investors, creditors, government agencies, and customers. They rely on this information to assess the company’s financial health, profitability, and overall performance, helping them make informed decisions about investments, loans, regulations, and even product purchases.

7. Enumerate information needs of management.

Ans. –

1. The informational needs of management are concerned with the activities given below.
2. Assists in decision making and business planning Preparing reports related to funds, costs and profits to ascertain the soundness of the business
3. Comparing current financial statements with its own historical financial statements and of other similar firms to assess the operational efficiency of the business.

8. Give any three examples of revenues.

Ans. – Three examples of revenue are:

Sales revenue
Interest received
Dividends

9. Distinguish between debtors and creditors; profit and gain

Ans. –

Basis of difference	Debtors	Creditors
Meaning	Persons or Organisations that are liable to pay money to a firm are called debtors.	Persons or organisations to whom the firm is liable to pay money are called creditors.
Nature	They have debit balance to the firm	They have credit balance to the firm.
Payment	Payments are received from them.	Payments are made to them.
Shown	They are shown as assets in the Balance sheet under current assets	They are show as liabilities in the Balance Sheet under current liabilities.

10. ‘Accounting information should be comparable’. Do you agree with this statement? Give two reasons.

Ans. –

Accounting information should be comparable because of the following reasons.

Comparable accounting information helps in inter-firm comparisons. This helps in assessing viability and advantages of various policies adopted by different firms.
It also helps in intra-firm comparisons that help in determining the changes and also to ascertain the results of various policies and plans adopted in different time periods. This also helps to figure out the errors, ascertain growth and assist in management planning.

11. If the accounting information is not clearly presented, which of the qualitative characteristic of the accounting information is violated?

Ans. –

If the accounting information is not clearly presented, then the qualitative characteristics like, comparability, reliability and understandability, are violated. This is because if the accounting information is not clearly presented, then meaningful comparison may not be possible, as the data is not trustworthy, which may lead to faulty conclusions.

12. “The role of accounting has changed over the period of time”- Do you agree? Explain.

Ans. –

The role of accounting is ever changing. While in earlier times, accounting was merely concerned with recording the financial events, i.e. record-keeping activity; however, now-a-days, accounting is done with the rationale of not only maintaining records, but also providing an information system that provides important and relevant information to various accounting users. The need of this change is brought over due to the ever-changing and dynamic business environment, which is more competitive in nature now than it was in earlier times. Further, there are various relevant activities like decision making, forecasting, comparison, and evaluation that make these changes in the role of accounting, inevitable.

13. Give examples, explain each of the following accounting terms:

Fixed assets
Revenue
Expenses
Short-term liability

Ans.-

Fixed assets:- These are held for long term and increase the profit earning capacity of the business, over various accounting periods. These assets are not meant for sale; for example, land, building, machinery, etc.
Revenue:- The amount of money that a producer receives in exchange for the sale of goods is known as revenue. In short, revenue means sales revenue. It is the amount received by a firm from the sale of a given quantity of a commodity
Expenses:- Amount spent or incurred to earn revenue. Such as salaries, wages, rent, etc.

There are two type of expense:

Prepaid Expense – It is an Expense that has been paid in advance and the benefit of which will be available in the following year or years. E.g. advance rent, insurance premium.
Outstanding Expense – It is an expense that has been incurred but has not been paid. E.g. outstanding salary, rent, subscription.

Short-term liability:- A short-term liability is a financial obligation that is to be paid within one year. This type of liability is classified within the current liabilities section of an entity’s balance sheet.

Examples of short-term liabilities are as follows:

14. Define revenues and expenses?

Ans. –

Revenue:- Revenues refer to the amount received from day to day activities of the business, likesale proceeds of goods and rendering services to the customers. Rent received, commission received, royalties and interest received are considered as revenue, as they are regular in nature and concerned with day to day activities. It is shown in the credit side of the profit and loss account or trading account.
Expenses:- Expenses refer to those costs that are incurred to earn revenue for the business. It is incurred for maintaining profitability of the business. It indicates the amount spent to meet short-term needs of the business. It is shown in the debit side of the profit and loss account or trading account. For example, wages, rent paid, salaries paid, outstanding wages, etc.

15. What is the primary reason for the business student and others to familiarise themselves with the accounting discipline?

Ans. – Every monetary transaction must be recorded in such a manner that various accounting users must understand and interpret these results in the same manner without any ambiguity. The reasons for why business students and others should familiarise themselves with the accounting discipline are given below.
1. It helps in learning the various aspects of accounting.
2. It helps in learning how to maintain books of accounts.
3. It helps in learning how to summarise accounting information.
4. It helps in learning how to interpret the accounting information with relative accuracy.

Long Answers

What is accounting? Define its objectives.

Ans. – Meaning

According to the American Accounting Association

“Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”

Objective:-

Maintaining Accounting Records – The objective of accounting is to record financial transactions and events of the organization in the books of account in a systematic manner following the principle of accountancy.
Determining Profit or Loss – Another objective of accounting is to determine whether during the accounting period, the firm has earned profit or has incurred loss. For this purpose, a statement called as Income Statement or the Trading and Profit and Loss Account is prepared.
Determining Financial Position – Another objective of accounting is to determine financial position. It is known from the Balance Sheet, Which shows value of the assets on one side and liabilities on the other side. Financial position of the business is a relevant for the users of financial statements as is the income statements, Profit and Loss Account.
Facilitating Management – The Management often required financial information for decision-making, effective control, budgeting and forecasting. Accounting provides financial information to assist the management in discharging this function.
Providing Accounting Information To Users – Yet another objective of accounting is to provide accounting information to users, both internal and external, who analyze them according to their requirements.

2. Explain the factors which necessitated systematic accounting.

Ans. –

The factors that necessitated systematic accounting are given below.
1. Only financial transactions are recorded- Those events that are financial in nature are only recorded in the books of accounts. For example, salary of an employee is recorded in the books but his/her educational qualification is not recorded.
2. Transactions are recorded in monetary terms- Only those transactions which can be expressed in monetary terms are recorded in the books. For example, if a business has two buildings and four machines, then their monetary values is recorded in the books, i.e. two buildings costing Rs 2,00,000, four machines costing Rs 8,00,000. Thus the total value of assets is Rs 10,00,000.
3. Art of recording- Transactions are recorded in the order of their occurrence.
4. Classification of transaction- Business transactions of similar nature are classified and posted under their respective accounts. For example, all the transactions relating to machinery will be posted in the Machinery Account.

5. Summarising of data- All business transactions are summarised in the form of Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet that provides necessary information to various users.
6. Analysing and interpreting data- Systematic accounting records enable users to analyse and interpret the accounting data in a proper and appropriate manner. These accounting data and information are presented in form of graphs, statements, charts that leads to easy communication and understandability by various users. Moreover, these facilitates in decision making and future predictions.

3. Describe the informational needs of external users.

Ans. –

There are various external users of accounting who need accounting information for decision making, investment planning and to assess the financial position of the business. The various external users are given below.
1. Banks and other financial institutions- Banks provide finance in form of loans and advances to various businesses. Thus, they need information regarding liquidity, creditworthiness, solvency and profitability to advance loans.
2. Creditors- These are those individuals and organisations to whom a business owes money on account of credit purchases of goods and receiving services; hence, the creditors require information about credit worthiness of the business.
3. Investors and potential investors- They invest or plan to invest in the business. Hence, in order to assess the viability and prospectus of their investment, creditors need information about profitability and solvency of the business.
4. Tax authorities- They need information about sales, revenues, profit and taxable income in order to determine the levy various types of tax on the business.

5. Government- It needs information to determine national income, GDP, industrial growth, etc. The accounting information assist the government in the formulation of various policies measures and to address various economic problems like employment, poverty etc.
6. Researcher- Various research institutes like NGOs and other independent research institutions like CRISIL, stock exchanges, etc. undertake various research projects and the accounting information facilitates their research work.
7. Consumer- Every business tries to build up reputation in the eyes of consumers, which can be created by the supply of better quality products and post-sale services at reasonable and affordable prices. Business that has transparent financial records, assists the customers to know the correct cost of production and accordingly assess the degree of reasonability of the price charged by the business for its products and thus helps in repo building of the business.
8. Public- Public is keenly interested to know the proportion of the profit that the business spends on various public welfare schemes; for example, charitable hospitals, funding schools, etc. This information is also revealed by the profit and loss account and balance sheet of the business.

4. What do you mean by an asset and what are different types of assets?

Ans. –

Any valuable thing that has monetary value, which is owned by a business, is its asset. In other words, assets are the monetary values of the properties or the legal rights that are owned by the business organisations.

Fixed Assets- These are those assets that are hold for the long term and increase the profit earning capacity and productive capacity of the business. These assets are not meant for sale, for example, land, building machinery, etc.
Current Assets- Assets that can be easily converted into cash or cash equivalents are termed as current assets. These are required to run day to day business activities; for example, cash, debtors, stock, etc.
Tangible Assets- Assets that have physical existence, i.e., which can be seen and touched, are tangible assets; for example, car, furniture, building, etc.
Intangible Assets- Assets that cannot be seen or touched, i.e. those assets that do not have physical existence, are intangible assets; for example, goodwill, patents, trade mark, etc.
Liquid Assets- Assets that are kept either in cash or cash equivalents are regarded as liquid assets. These can be converted into cash in a very short period of time; for example, cash, bank, bills receivable, etc.
Fictitious Assets- These are the heavy revenue expenditures, the benefit of whose can be derived in more than one year. They represent loss or expense that are written off over a period of time, for example, if advertisement expenditure is Rs.1,00,000 for 5 years, then each year Rs.2,00,000 will be written off.

5. Explain the meaning of gain and profit. Distinguish between these two terms.

Ans. –

Profit- Excess of revenue over expense is known as profit. It is normally categorised into gross profit or net profit. It increases the owner’s capital as it is added to the capital at the end of each accounting period. For example, goods costing Rs.1, 00,000 is sold at Rs.1,20,000, then the sale proceeds of Rs.1,20,000 is the revenue and 1,00,000 is the expense to generate this revenue. Hence, accounting profit of Rs.20,000 (i.e. Rs.1,20,000 – Rs.1,00,000) is the difference between the revenue and expense that is earned by the business.
Gain- It arises from irregular activities or non-recurring transactions. In other words, a gain is a result of transactions that are incidental to the business, other than operating transactions. For example, an old machinery of book value Rs.20,000 is sold at Rs.25,000. Hence, the gain is Rs.5,000 (i.e. Rs.25,000 – Rs.20,000). Here, the sale of the old machinery is an irregular activity; so, the difference is termed as gain
Thus, in other words the only difference between profit and gain is that profit is the excess of revenue over expense and gain arises from other than operating transactions.

6. Explain the qualitative characteristics of accounting information.

Ans. –

The following are the qualitative characteristics of accounting information:
1. Reliability- It means that the user can rely on the accounting information. All accounting information is verifiable and can be verified from the source document (voucher), viz. cash memos, bills, etc. Hence, the available information should be free from any errors and unbiased.
2. Relevance- It means that essential and appropriate information should be easily and timely available and any irrelevant information should be avoided. The users of accounting information need relevant information for decision making, planning and predicting the future conditions.
3. Understandability- Accounting information should be presented in such a way that every user is able to interpret the information without any difficulty in a meaningful and appropriate manner.
4. Comparability- It is the most important quality of accounting information. Comparability means accounting information of a current year can be comparable with that of the previous years. Comparability enables intra-firm and inter-firm comparison. This assists in assessing the outcomes of various policies and programmes adopted in different time horizons by the same or different businesses. Further, it helps to ascertain the growth and progress of the business over time and in comparison to other businesses.

7. Describe the role of accounting in the modern world.

Ans. –

The role of accounting has been changing over a period of time. In the modern world, the role of accounting is not only limited to record financial transactions but also to provide a basic framework for various decision making, providing relevant information to various users and assists in both short-run and long run planning. The role of accounting in the modern world is given below.
1. Assisting management- Management uses accounting information for short term and long term planning of business activities, to predict the future conditions, prepare budgets and various control measures.
2. Comparative study- In the modern world, accounting information helps us to know the performance of the business by comparing current year’s profit with that of the previous years and also with other firms in the same industry.
3. Substitute of memory- In the modern world, every business incurs large number of transactions and it is beyond human capability to memorise each and every transaction. Hence, it is very necessary to record transactions in the books of accounts.
4. Information to end user- Accounting plays an important role in recording, summarising and providing relevant and reliable information to its users, in form of financial data that helps in decision making.

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