It is influenced by personal judgements and not free from personal bias which affects its credibility. It considers only historical transactions and the figures given in the financial statement do not consider price level changes. Non monetary aspects like quality, honesty, skills are ignored in accounting. One of the major limitations of accounting is that it considers only monetary transactions.
with that of previous years and helps businessmen to make decisions.Īccounting forms a basis in the process of performance evaluation to improve the performance of employees, divisions,activities, etc.Īccounting records act as an approved evidence in legal matters.
who perform an in depth analysis as per the requirement of the stakeholders.Īccounting provides permanent records for all business transactions and provides reliable information to various parties.Īccounting provides the Profit and loss of a business for a given period of time.Īccounting provides the facility of comparative study of the various aspects of business like profit sales, purchase,etc. To provide accounting information to various interested parties like owners, creditors, banks, employees etc. To ascertain the progress of business from year to year and to detect errors and frauds. To ascertain the financial position of business by means of financial statement i.e,Balance sheet. To ascertain the net profit or loss suffered on account of business transactions during a particular period and to know the exact reasons leading to profit or loss. To maintain proper records of business transactions according to specified rules which helps them to minimize the chance of omission and fraud. Trial balance.Ĭommunicating: Accounting also includes the communication of financial data like financial statements to the users who analyse them as per individual requirements.
Summarising : It is the process of putting the balances of all accounts at one place i.e. Classification refers to the grouping of all the transactions of same nature at one place. It involves recording them in a journal and keeping a systematic record of all of them.Ĭlassifying: After recording the transactions they are classified. Recording : Only those transactions are recorded in books of accounts which can be measured in terms of money.
Identifying : Identifying the business transactions from various sources is the first step of involves observing all business activities and identifying those which are considered as financial transactions. Accounting is an art of recording, classifying and summarizing the monetary transactions in an efficient manner and interpreting the results.
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