Branches of Accounting, Accounting uses and limitations of financial accounting

Accounting vs. Book-keepingBook maintenance concerns itself with the recording (correctly and in a series of books) for those operations that involve the transfer of money or in money. Whereas accounting is comprehensive perspective. It covers the classification, summarizing, presenting and analyzing information, including accounting.

Accounting Accounting vs.

Body of knowledge (consisting of principles, postulates, assumptions, conventions, concepts and rules) governing the science of recording classifying and analyzing financial transactions is accounting. Whereas the practice of science and art of accounting is defined as accountancy.To meet the increasing demands on accounting by different interested parties (such as owners, management, creditors, tax authorities, etc.) the various sectors are came into existence. Subject AccountingThe financial accounting financial analysis is to verify the result (profit or loss) from trading activities during the particular period and to indicate the financial position (balance), as in a date at the end of the period.

Cost Accounting

The object of cost accounting is to find the cost of goods produced or services provided by an undertaking. It also helps the business to control costs, indicating avoidable losses and AccountingThe wastes.Management control object is to provide management with timely information to enable management to make decisions and the effects control.In this brief web, we only affects the financial accounting. The objects of financial accounting as described above can only be achieved by recording the financial transactions in a systematic way according to a set of principles. Recorded information should be classified, analyzed and presented in a way that the business results and financial position may be ascertained.

Uses of Accounting

Accounting plays an important role in developing and useful information to provide answers to many questions faced by users of accounting information.

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

(2) the business has resulted in a gain or loss?

(3) as well as the various departments of business have performed in the past?

(4) What are the activities or products are profitable?

(5) Among the existing products that should be stopped and the production of goods, which should be increased.

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

(7) if the production cost is reasonable or excessive?

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

(9) What are the possible outcomes of policy decisions on the future ability to gain new business?

(10) In light of past performance as a business should plan ahead to ensure the desired results?

Above are some examples of the types of issues faced by users of accounting information. These can be a satisfactory response with the help of the information provided by appropriate and necessary accounting.

Moreover, accounting is also useful for the following aspects: -

(1) Increase the volume of business results in large numbers of transactions and any business owner can remember everything. The accounting records obviate the need to remember different operations.

(2) accounting document, prepared on the basis of uniform practices, will allow companies to compare the results of a period with another period.

(3) tax authorities (both income taxes and sales taxes) are inclined to believe the facts in the series of books, if maintained according to generally accepted accounting principles.

(4) records cocooning, supported by appropriate and certified vouchers are good evidence in a court of law.

(5) If the business is to be sold as a going concern then the values ​​of different activities, as indicated by the budget helps trading price appropriate for the business.

Limitations of financial accounting

Advantages of accounting discussed in this section does not suggest that the accounts are free from limitations.

Following are the limitations:

Financial accounts treatmentsAccounting alternative is based on concepts and follows "generally accepted principles", but there is more than one rule for the handling of any one article. This allows alternative treatments with in the framework of generally accepted principles. For example, the closing stocks of a company can be assessed by any of the following methods: FIFO (First-in-first-out), LIFO (Last-in-first-out), average price, standard price, etc., but the results are not comparable.

Financial accounting does not provide timely information

There is a limitation when high powered software application like HiTech Financial Accenting are used to keep records on-line and simultaneously in the budget is made available almost instantaneously. However, the accounting manual does not have this defect.

Financial accounting is designed to provide information in the form of statements (balance sheet and income statement) for a period of usually one year. So the information is, at best, and only of historical interest 'post-mortem' analysis of the past can be conducted. The company needs timely information at frequent intervals to allow management to plan and take corrective action. For example, if a company has estimated that during the current year sales should be $ 12,00,000 then requires information on whether the sales in the first month of the year amounted to $ 10,00,000 or less or more?

Traditionally, the accounts should provide information in the short interval of less than one year. With the advent of today's computerized accounting software like HiTech Financial Accounting displays monthly profit and loss account and balance sheet to overcome this limitation. Financial accounting is influenced by personal judgments'Convention objectivity 'is respected in accounting but to record certain events estimates must be made which requires personal judgment. It 's very difficult to expect accuracy in future estimates and objectivity suffers. For example, in order to determine the amount of depreciation to be charged every year for the use of fixed assets requires the estimation and the income disclosed by accounting is not authoritative but 'approximation'.

Financial accounting ignores important non-monetary information

Financial accounting does not consider the operations of non-monetary in nature. For example, the extent of competition faced by the business, technical innovations possessed by the company loyalty, and efficiency of employees, changes in the value of money, etc. are the important issues where management of the business is very interested, but accounting is not tailored to take note of these issues. In this way, any user of financial information is, of course, devoid of vital information that is non-monetary. In modern times a good accounting software MIS and CRM can be more useful to partially overcome this limitation.

Financial Accounting does not provide a detailed analysis

The information provided by financial accounting is actually aggregates of financial transactions during the year. Of course, you study the overall results of the business has requested information regarding the ', cost, revenues and profitability of each product but financial accounting does not provide such detailed product-wise. For example, if the business has earned a net total of say, $ 5,00,000 during the accounting period and sells three products, particularly gasoline. diesel and mobile and wants to know profit earned by each product Financial accounting is unable to help unless you use a computerized accounting system capable of handling such complex queries. Many reports in a computer accounting software like HiTech Financial Accounting which are explained with charts and reports tailored to the needs of the business overcome this limitation.

Financial Accounting does not disclose the present value of the business

In financial accounting the position of the business as a particular date is indicated by a statement known as 'Balance Sheet'. In the budget activities are given on the basis of "Entity Concept continues. So it is assumed that firms have relatively long life and will continue to exist indefinitely, then the assets are 'going concern values.' The 'realized value' of each asset, if sold today can not be known through the study of the budget....