Accountancy in Daily Life


By

N. Viswanadham
Asst. Professor
Department of Management Studies
Pydah College of Engg & Tech
Gambheeram, Visakhapatnam
 


Accounting has been called "language of business".  It is the language employed to communicate financial information of a concern to various parties such as shareholders, creditors, investors, employees, government, research scholars, consumers, and managers etc., who are interested in such information Accounting's 500 year exceptional durability is being severely tested by the New Economy, characterized by the fast pace of technological change and the consequent increased uncertainty, the substitution of intangible for tangible assets as the major drivers of value, and the blurring of the boundaries between the firm and its customers, suppliers and even competitors.   Accounting principles can be applicable in the trading concerns like sole trading partnership firms, companies, non-profit-trading concerns, clubs, educational institutions, agricultural farms, management and even households, students, employers and people.

Origin of Accounting

Many people have the opinion that accounting has been developed in recent years.  But from the puranas we see that Chitragupta maintains accounts for qualities and vices.  In olden days if we see the kingdoms, in each Kingdom there was financial minister who used to look after the financial matters like cash transactions, taxes payable by people to king etc.  If we come to know about the chapter "The business of keeping of Accounts in the Office of Accounts" from the book named "Arthashastra" written by Kautilya, Minister of king Chandragupta, it becomes clear that Accountancy was practiced in India Twenty-Three centuries back.

However, the current structure of accounting based on the principles of double entry system owes its cause to Luco Pacioli, who first published the principles of double entry system in 1494 at Venice in Italy.

Definition

A preferential committees on terminology proposed in 1941 that Accounting be defined as "the art of recording, classifying, summarizing in a significant manner and in terms of money transactions and events which are in part, at least of financial character and interpreting the results there of".

In accounting we must record the dealings in the books.  A system of recording transactions of a business man in his account books is called book keeping.

Double Entry System

The best known system of book keeping which enables a trader to achieve his objectives is called Double-Entry system.  It is known as double-entry system because it is based on fundamental principle that no deal can obtain place without regarding at least two parties or two aspects or two accounts.  The basic principle of double entry system is that for every debit there must be a corresponding double-entry system because it is based on fundamental principle that no transaction can take place without concerning at least two parties or two aspects or two accounts. 

The Nature and Purpose of Accounting:

The present system of accounting occupies a vital position in today's business.  With the help of accounting, manager or owner can take countless important decisions and make right decisions at right time which is key to success.  Owners can know whether they have made profitable investment.  The cost accountant can know how to control the cost of production.  Government can get date for tax and license purpose.  So accounts will provide information to every person regarding the particular concern.

Application of Accounts in Various fields:

Now that we live in era of accounting, we will see how this accounting is useful for each concern or individual.

1. Trading Concerns:

Accounting is useful for the trading concerns like sole trading concerns, partnership firms, Joint stock companies etc.  The concerns enter every day transactions in journal proper, later part into ledger accounts.  At the end of the year they will prepare trading account, profit and loss Account and balance Sheet.  Profit & Loss Account shows how much profit or loss they got.  Balance sheet shows the financial position of the concern.

With efficient Accounting the manager can get prompt Answers to such questions as what is profit made?  How much amount owed to creditor?  What is our Cash position today?  What is the cost of a unit of product?  How much money we have to receive from the debtors?  How much money we come to creditors?  Etc,

If the concern gets the losses, they will find out the reasons and next time will try to rectify the defects.

Non-trading concerns:

The clubs, societies and most associations are formed for the use of benefit of members, not for the purpose of trading.  The main income of the organization is derived form subscriptions and donations, and where there is surplus over expenditure, it is used for the benefit of the club of for well being of its members.

In this concern Income and Expenditure account will be prepared.  The main purpose of preparation of this income and expenditure is to know what the total income of the concern is.  How it came and the manner in which it has been spent.

Agricultural farm:

India is an agricultural country, where 80% of people depend on agriculture.  For gainful farm management proper accounting principles are to be followed by the farmers, which will be wrathful and valuable information to them.  These are the amount of capital invested for purchasing of land and other assets necessary for agriculture, interest for the purchase of land and other assets, labor and supervision charges, yield per acre, transportation charges etc,.

Government:

Accounting will help the government in the budgeting and planning.  Government will see how much total amount is available from the various sources like direct and indirect taxes from firms, public etc and how to allocate this income for the development of various sectors like Agriculture.  Industry, Education, Backward classes according to priority, if the money is not sufficient the Government will borrow from the banks, or get it by issuing National Saving Certificates, by inviting public Deposits etc.

Accounting also plays very important role in the economic development of developing nations like India by providing accurate, exact and timely accounting date information for their future planning, reconstruction of their backward economy with the economic development, means per capital income of the society is raised and the levels of economic and social welfare of the population in developing countries is also geared up, with the production of goods and services on large scale with lower cost of accounting.  This is possible only with the help of proper accounting.

House holds:

Accounting will be helpful for the house wife for planning and decision making.  First we can divide the total income into various parts as house hold expenditure, education of children, savings, and for medical facilities etc, in household expenditure again she must see the items which are necessary and which are not necessary.  Next month she can decrease the amount on the items which are not necessary.  So with the help of accounts she can spend money in a more efficient manner and can avoid wastage.

Employees and Employers:

Accounting will help the employees to do justice for their job.  They must see whether salary received per day is equal to the work they are giving per day.  It is also duty of the management to see that the salary they are paying is equal to the work they are receiving.  If both Employees and Employers get in a right method then there is no span of strikes or lockouts in the concern and the production will be increased.

Conclusion:

Accountancy is helpful for trading concerns, non-trading concerns, and government and in general, to Households, students, employers, employees, to every one.  We can apply accounting principles in each and every sphere of our lives.  Before asking the question what the country has done for me? Every person must ask himself what he has done for the country as the accounting principle.  Then, each and every person will work hard for the prosperity of the country in Accounting era..  The established accounting representation recognizing primarily tangibles as assets, dealing asymmetrically with uncertainty (recognizing expected losses but ignoring expected gains), and focusing on legally-based transactions while abstracting from many value-changing events  was not designed to deal with the new economic environment, and therefore no longer serves necessary managers' and investors' needs. Stress signs are all too visible.
 


N. Viswanadham
Asst. Professor
Department of Management Studies
Pydah College of Engg & Tech
Gambheeram, Visakhapatnam
 

Source: E-mail December 2, 2007

          

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