provided with a complete picture of the liquidity, profitability and solvency of the business. (iv) Aid to decision making Management of a firm has to make routine and strategic decisions while discharging its functions. Accounting provides the relevant data to make appropriate decisions. Future policies and programmes can be planned by the management based on the accounting data provided.
(v) Satisfies legal requirements Various legal requirements like maintenance of Provident Fund (PF) for employees, Employees State Insurance (ESI) contributions, Tax Deducted at Source (TDS), filing of tax returns are properly fulfilled with the help of accounting. Preparation of accounts and financial statements as per the legal requirements is also facilitated. (vi) Information to interested groups Accounting supplies appropriate information to different interested groups like owners, management,creditors, employees, financial institutions, tax authorities and the government. (vii) Legal evidence Accounting records are generally accepted as evidence in courts of law and other legal authorities in the settlement of disputes.
(viii) Computation of tax Accounting records are the basic source for computation and settlement of income tax and other taxes. (ix) Settlement during merger When two or more business units decide to merger, accounting records provide information for deciding the terms of merger and any compensation payable as a consequence of merger. Two or more business units forming a single entity is known as merger. ◆ Systematic records ◆ Preparation of financial statements ◆ Assessment of progress IMPORTANCE ◆ Aid to decision making ◆ Satisfies legal requirements ◆ Information to interested groups OF ◆ Legal evidence ◆ Computation of tax ◆ Settlement during merger ACCOUNTING Accountancy - .
Basic Accounting terminologies Accounting is a versatile system which serves a large number of purposes in the modern business world. Hence, the following terminologies need to be understood. Transaction An activity which involves transfer of money or money’s worth (goods, services, ideas) from one person to another. Cash transaction It is a transaction which involves immediate cash receipt or immediate cash payment.
Credit transaction It is a transaction in which cash is not received or paid immediately, but will