Scope of accounting
1. Accounting is concerned with financial transactions and events which bring' about a change in the
resources (or wealth) position of the business firm. Such transactions have to be identified first, as
and when they occur. It is not difficult because. there will be proof in the form of a bill or receipt
(called vouchers). With the help of these bills and receipts identification of a transaction is easy. For
example, when you purchase something you get a bill, when you make payment you get a receipt.
2. These transactions are to be measured or expressed in terms of money, if not done already.
Generally, this problem will not arise, because the statement of proof expresses the transaction in
terms of money. For example, if ten books are purchased at the rate of Rs. 20 each, then the bill is
prepared for Rs. 200. But, if an event cannot be expressed in monetary terms, it will not come under
the scope of accounting.
3 The transactions which are identified and measured are to be recorded in a book called journal or
in one of its sub-divisions.
4. The recorded transactions are to be classified with a view to group transactions of similar nature
at one place. The work of classification is done in a separate book called ledger. In the ledger, a
separate account is opened for each item so that all transactions relating to it can be brought to one
place. For example, all payments of salaries are brought to salaries account.
5. The recording and classification of many transactions will result in a mass of financial data. It is,
therefore, necessary to summarise such data periodically (at least once a year), in a significant and
meaningful form. The summarisation is done in the form of profit and loss account which reveals the
profit made or loss incurred, and the balance sheet which reveals the financial position.
6. The summary results will have to be analysed, interpreted (critically explained) and communicated
to interested parties. Accounting information is generally communicated in the form of a 'report'. Big
organisations generally present printed reports, called published account.
7. ‘Financial position’ is another core accounting measurement. Financial position is identified by
preparing a statement of ownership i.e., Assets and Owings i.e., liabilities of the business as on a
certain date. This statement is popularly known as balance sheet. Various other accounting
measurements such as different types of assets and different types of liabilities as existed at a
particular date are considered for preparing the balance sheet. This statement may be used by
various stakeholders for financing and investment decision.
1. Accounting is concerned with financial transactions and events which bring' about a change in the
resources (or wealth) position of the business firm. Such transactions have to be identified first, as
and when they occur. It is not difficult because. there will be proof in the form of a bill or receipt
(called vouchers). With the help of these bills and receipts identification of a transaction is easy. For
example, when you purchase something you get a bill, when you make payment you get a receipt.
2. These transactions are to be measured or expressed in terms of money, if not done already.
Generally, this problem will not arise, because the statement of proof expresses the transaction in
terms of money. For example, if ten books are purchased at the rate of Rs. 20 each, then the bill is
prepared for Rs. 200. But, if an event cannot be expressed in monetary terms, it will not come under
the scope of accounting.
3 The transactions which are identified and measured are to be recorded in a book called journal or
in one of its sub-divisions.
4. The recorded transactions are to be classified with a view to group transactions of similar nature
at one place. The work of classification is done in a separate book called ledger. In the ledger, a
separate account is opened for each item so that all transactions relating to it can be brought to one
place. For example, all payments of salaries are brought to salaries account.
5. The recording and classification of many transactions will result in a mass of financial data. It is,
therefore, necessary to summarise such data periodically (at least once a year), in a significant and
meaningful form. The summarisation is done in the form of profit and loss account which reveals the
profit made or loss incurred, and the balance sheet which reveals the financial position.
6. The summary results will have to be analysed, interpreted (critically explained) and communicated
to interested parties. Accounting information is generally communicated in the form of a 'report'. Big
organisations generally present printed reports, called published account.
7. ‘Financial position’ is another core accounting measurement. Financial position is identified by
preparing a statement of ownership i.e., Assets and Owings i.e., liabilities of the business as on a
certain date. This statement is popularly known as balance sheet. Various other accounting
measurements such as different types of assets and different types of liabilities as existed at a
particular date are considered for preparing the balance sheet. This statement may be used by
various stakeholders for financing and investment decision.
