Monthly Archives: September 2017

Accounting As a Source of Information

Accounting is a definite process of interlinked activities that begins with the identification of transactions and ends with the preparation of financial statements. Every step in the process of accounting generates information. Generation of information is not an end in itself. It is a means to facilitate the dissemination of information among various groups of users. Such information enables the parties those who are interested to take appropriate decisions. Therefore, dissemination of information is one of the essential function of accounting. To be useful, the accounting information should ensure to:• Provide information for making economic decisions;
• Serve the users who rely on financial statements as their principal source of information;
• Provide information useful for evaluating and predicting the timing, amount and uncertainty of potential cash-flows;
• Provide information for judging management’s ability to utilise resources effectively in meeting goals; provide factual and interpretative information by disclosing underlying assumptions on matters subject to interpretation, evaluation, prediction, or estimation; and
• Provide information on activities affecting the society.

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The role of an accountant in generating accounting information is to screen, observe and recognise transactions and events to measure and process them, and thereby compile reports comprising accounting information that are communicated to the users. These are then interpreted, decoded and used by management and other user groups. It must be ensured that the information provided is relevant, adequate and reliable for decision-making. The apparently divergent needs of internal and external users of accounting information have resulted in the development of sub-disciplines within the accounting discipline namely, financial accounting, cost accounting and management accounting. Financial accounting assists for keeping a systematic record of financial transactions the presentation and preparation of financial reports in order to arrive at a measure of organizational success and financial soundness.It relates to the past period, serves the stewardship function and is monetary in nature. It is primarily concerned with the provision of financial information to all stakeholders. Cost accounting assists in analyzing the income and expenditure for ascertaining the cost of various products manufactured or services provided by the firm and fixation of prices thereof. It also helps to control the costs and providing necessary costing information to management for decision-making. Management accounting deals with the provision of required accounting information to people within the organisation to enable them in planning, decision-making, and controlling business operations.

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Management accounting draws the relevant information mainly from cost accounting and financial accounting which helps the management in budgeting, assessing profitability, taking pricing decisions, capital expenditure decisions and so on. Besides, it generates other information which relates to the future and is relevant for decision-making in the organisation. Such information includes: cash flows, sales forecast, manpower needs, purchase requirement, environmental data about effects on water, air, land, natural resources, flora, fauna, social responsibilities, human health, etc. As a result, the scope of accounting has become so vast, that new areas like human resource accounting, social accounting, responsibility accounting have also gained prominence.