Accounting & Its Functions


Emerging Role of Accounting

Q. Explain briefly the meaning of

  • Financial Accounting (Dec. 99, Jan. 01)
  • Management Accounting (June 00)
  • Social Responsibility Accounting (Dec. 00, June 01)
  • Human Resource Accounting (June 03)

Financial Accounting (Jan 01)

Financial or traditional accounting consists of the classification, recording, and analysis of the transactions of a business in a subjective manner according to the nature of expenditure so as to enable the presentation at periodic intervals, of statements of profit or loss of the business and, on a specified date, of its financial state of affairs. The day-to-day transactions journalized or recorded in subsidiary books are posted in the various ledgers and at the end of the accounting period, a Profit and Loss Account and a Balance Sheet are prepared. The emphasis is on the ascertainment and exhibition of the profits earned or losses incurred by the business rather than on the aspects of planning and control and decision making.

Financial accounting safeguards the interests of the business and its proprietors and other connected with it by providing suitable accounts and information to various parties, such as the shareholders or partners, present and prospective creditors and the Government. The accounts are kept in a manner so as to meet the provisions of the Companies Act and to present correct figures to income tax, excise and other authorities. These accounts show how gainfully the resources of the business were employed.


Management Accounting (June 00)

Management accounting includes all those accounting services by means of which assistance is rendered to the management at all levels, in formulation of policy, fixation of plans, control of their execution, and measurement of performance. Management accounting is primarily concerned with the supply of information which is useful to the management in decision making for the efficient running of the business and thus, in maximizing profit. Management account employs various techniques, which include standard costing, budgetary control, marginal costing, break-even and cost-volume-profit analysis, uniform costing and inter-firm comparison, ratio accounting, internal audit, and capital project assessment and control.

Social Responsibility Accounting (Dec. 00, June 01)

Social responsibility accounting is a new phase in the development of accounting and owes its birth to increasing social awareness, which has been particularly noticeable over the last two decades or so. Social responsibility accounting widens the scope of accounting by considering the social effects of business decisions, in addition to the economic effects. Several social scientists, statesmen and social workers all over the world have been drawing the attention of their governments and the people in their countries to the dangers posed to environment and ecology by the unbridled industrial growth. The role of business in society is increasingly coming under greater scrutiny. The management is being held responsible not only for efficient conduct of business as expressed in profitability, but also for what it contributes to social well being and progress. There is a growing feeling that the concepts of growth and profit as measured in traditional balance sheets and income statements are too narrow to reflect the social responsibility aspects of a business.

Human Resource Accounting (June 03)

It is another new field of accounting which seeks to report and emphasize the importance of human resources in a company's earnings. It is based on the fact that the only real long lasting asset which an organization possesses is the quality of the people working in it. This system of accounting is concerned with " the process of identifying and measuring data about human resources and communicating this information to interested parties."

Q. How does management Accounting differs from Financial Accounting? Explain briefly, how management accounting helps the management of a company in making its decisions. (Dec. 02)

Financial or traditional accounting consists of the classification, recording, and analysis of the transactions of a business in a subjective manner according to the nature of expenditure so as to enable the presentation at periodic intervals, of statements of profit or loss of the business and, on a specified date, of its financial state of affairs. The day-to-day transactions journalized or recorded in subsidiary books are posted in the various ledgers and at the end of the accounting period, a Profit and Loss Account and a Balance Sheet are prepared. The emphasis is on the ascertainment and exhibition of the profits earned or losses incurred by the business rather than on the aspects of planning and control and decision making.

Management accounting includes all those accounting services by means of which assistance is rendered to the management at all levels, in formulation of policy fixation of plans and control of their execution, and measurement of performance. Management accounting is primarily concerned with the supply of information which is useful to the management in decision making for the efficient running of the business and thus, in maximizing profit. Management account employs various techniques, which include standard costing, budgetary control, marginal costing, break-even and cost-volume-profit analysis, uniform costing and inter-firm comparison, ratio accounting, internal audit, and capital project assessment and control.

 Difference

  • Financial accounting depicts the past position of the concern, while management accounting stresses at future.
  • Financial accounting keeps a record of very large number of daily business transactions and prepares various financial statements according to accounting principles and standards. In management accounting there is no such compulsion. It lays emphasis on analysis and standards.
  • Management accounting provides data to managers to help them in making decisions about the future. To the contrary, financial accounting aims at meeting the requirements of outside parties who have financial stake in the business.
  • Financial accounting is mandatory for all joint stock companies and business organizations but this is not the case with management accounting.
 
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