In your organisation or any other organisation of your choice try to find out about the accounting concepts that are being used, whether the accounting practices are standardized, if so, why. Also write in brief as to how accounting information helps them in the allocation of resources.
Ans. There is no doubt about the fact that accounting is an information system. The accounting information is highly useful for different groups of persons. No organisation can function with out the use of money and hence without accounting. For an organisation, accounting information is very important for its functioning. Not only the proprietors and the managers, but also the other groups of persons are interested in getting accounting information. Management seeks accounting information to be utilizing for its different function as discussed below in my organisation (Ms. Wipro India Ltd.)
1. Planning: The planning function of management involves defining goals and course of actions to achieve them through formulation of appropriate policies. Accounting information provides relevant data which on analyses help the manager to define goals and their course of actions to attain them. The information is highly useful for decision making for effective planning process.
2. Controlling: Management function of controlling includes evaluation of performance so as to ascertain that the course of actions is leading to the attainment of predefined goals. In case of any deviation, remedial measures could be taken due to controlling activity. The parameters of controlling are mainly related to finance and accounts. Any information from the accountant is of high value to the management since ultimate objective of any organisation is to earn maximum profit. Techniques such as budgetary control, operating statement, cash inflow etc. are utilized by the management to control the overall functioning of the organisation.
3. Coordinating: Coordinating process is one which is required to interlink different divisions of the enterprise so as to accomplish the organizational objectives as a whole. Every department has its budget and production figures which is maintained by the accountant. These statements are used to interlink various departments. For example, purchase department has to purchase raw materials for which money is allocated. Financial statement of this department would reflect the status of all purchases. It is useful for the production department to know that the material is available and production can start. Thus the financial details are used to interlink various departments.
4. Organising: Whole organisation is divided into various groups or department to organize various activities related to the attainment of its goals. These groups could be cost centres or profit centres. A sound system of internal audit for each of these centres would help in effective organising the whole organisation into a profitable establishment.
5. Motivating: Employees should be motivated so that hey carry out their work willingly keeping high morale at work. Periodical department-wise financial statements and analysis could help management to take actions to promote, demote, reward or penalize.
6. Communicating: Communication is the process of transmitting information both inside and outside the organisation. The requirement of the management in maintaining proper communication network is important particularly when accounting information needs to be communicated to all concerned such as shareholders, creditors prospective investors etc.
From the above discussion, it can be concluded that an accountant helps in planning and controlling a large commercial organisation.
Management function of controlling is the most important objective of utilizing the accounting information. It evaluates the performance of each department or product to ensure about their course of actions towards attainment of predefined organizational goals. In case of any deviation, remedial measures could be taken due to controlling activity.
Accounting Period Concept
Accounting period concept is an accounting concept under which the life of the business is divided into appropriate segments for studying the results shown by the business after each segment. Although the life period is assumed to be quite long but the analysis of performance of business after a long period could be of no significance. Thus a suitable time period is considered after which businessman should stop to review how things are going. This time period is known as accounting period. At the end of each accounting period, income statement and a balance sheet is prepared to assess the profitability of the business. These statements have proper distinction between revenue and capital expenditure.
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