Chapter 1 - Theoretical Framework : Unit 1 - Meaning and Scope of Accounting - PART 2

• Functions of accounting (What is to be done  in accounting) :

Hint to remember : Friends went to MC Donald from College and had a Great time there

• Forecasting - forecast future performance and financial position from past data
• Measurement - measures past performance and depicts its financial position
• Comparison and evaluation - assesses performance achieved in relation to targets and discloses information that assists in predicting, comparing and evaluating financial results
• Decision Making - provides relevant information to users of accounts to aid rational decision 
• Control - identifies weakness of operational system and provides feedback on the feedback on effectiveness of control implemented to overcome weakness
• Government Regulation and taxation - provides necessary information to government to exercise control on entity, collection of tax revenues

• Book Keeping :
• Meaning :

Recording of financial aspect of business operations in significant and orderly manner. Journal and Ledger - to enable the preparation of Financial Statements. Essential idea is to show correct position regarding each head of income and expenditure.

Book keeping is required by law for companies, banking, insurance, electricity companies, which are governed by separate acts, however, law does not mandate book keeping for sole proprietorship and partnership unless covered by the Income Tax Act, 1961

• Objectives :
• Complete Recording of transactions - It is concerned with complete and permanent record of all transactions in a systematic and logical manner to show the financial effect on the business
• Ascertainment of Financial Effect on the Business - It is concerned with the combined effect of all the transactions made during the accounting period upon the financial position of business as a whole

• Differences between Book keeping and Accounting :

Book keeping is the recording phase while accounting is summarising phase. Book keeping provides necessary data for accounting and accounting starts where book keeping ends

Sl No	Book Keeping	Accounting
1	Process of recording of transactions	Process of summarising of recorded transactions
2	Basis for accounting	It is considered as language of business
3	Financial Statements do not form part of this process	Financial Statements forms part of this process
4	Managerial decisions cannot be taken with the help of these records	Managerial decisions can be taken with the help of these records
5	There  is no sub-field of book keeping	There  are several sub-fields of book keeping like cost accounting, management accounting etc
6	Financial position of business cannot be ascertained on the basis of these records	Financial position of business can be ascertained on the basis of the accounting reports

• Sub fields of Accounting :

Hint to remember : Hear Channa Mereya  Song on FM radio

• Human Resource Accounting - identify, quantify and report investment in human resources by an organisation, which is not followed in conventional accounting practice
• Cost Accounting - process of accounting for cost which deals with recording of expenditure or bases on which they are calculated and ends with preparing periodic reports for ascertaining and controlling Costs
• Social Responsibility Accounting - demand arose due to the increasing social awareness about undesirable by products of economic  activity. This involves accounting for social costs incurred and social benefits created
• Financial Accounting - Preparation of Financial statements, interpretation of Financial statements and communicating to users. It records transactions that have already occurred, hence historical in nature. The final step is preparation of PL and BS
• Management Accounting - internal reporting to managers of business unit. Serves information requirement of managers, to discharge their functions, planning, controlling and decision making by preparation of reports

• Users of Accounting :

External Users	Internal Users
Lenders - Loan principal and interest due will be paid	Investors - provide capital to business. Information is required for them to decide to buy, hold or sell investment, also, the ability to pay dividend. In non corporate, where ownership and management is not separated, information about performance of business and its financial position is required to decide if the business is to be continued or shut down
Suppliers and creditors - to decide credit policy, rates to be charged to know ability of organisation to pay dues. Sometimes, the long term continuation of business of organisation is required for survival of its business for ex, supplier of ancillary units	Employees - they are directly related to growth of organisation and they are interested to know stability, continuity and growth of organisation, ability to pay remuneration, retirement and other benefits and enhance employment opportunities
Customers - stability and profitability of enterprise	Management - for managerial decisions on functioning of enterprise
Government and other agencies - regulate functioning of enterprise for public good, control; prices, charge duties and taxes
Public - interested in functioning of enterprise as organisation contributes to local economy by way of employment opportunities and their transactions with local suppliers