From the outside, accounting studies can appear to be a purely practical subject. It would be very easy to focus on just the applications of techniques and procedures. But accounting is more than just a set of calculations; unless we can understand and interpret the figures we produce, the calculations are pointless.
Accounting provides information for a wide variety of different users and purposes, and its practices can only be properly understood and assessed in relation to the economic and social environment in which they are applied. Therefore there are four aspects to this subject:
- Techniques for recording, calculation, classification and reporting of accounting information.
- The legal and institutional background associated with accounting information.
- The economic and administrative problems which the information is required to solve.
- The interpretation of reports prepared using 1 in the light of 2 and 3.
The accounting information referred to in 1 need not be financial, although in most cases it will almost always be.
The problems referred to in 3 are largely concerned with the planning of, and control over, the use of economic resources. They are also concerned with the measurement of income and of various kinds of value changes.
In order to properly interpret accounting information as in 4, and apply it to the problems in 3, we need to understand the theory and principles which underlie the techniques in 1.
The accounting study is traditionally divided into two parts according to the types of users of the accounting information. Financial accounting study is primarily concerned with the needs of users outside the business (or other organisation). Therefore it relates to the external control and management of resources (for example, by shareholders of the company in which they have invested their funds, or by banks making loans). A key part of financial accounting is reporting the performance and position of the business to these external users, via the financial statements. The form and content of financial statements is usually highly regulated. In contrast, management accounting is concerned with the needs of users inside the business. Therefore it relates to the internal control and management of resources (for example, by the directors, management or employees of a company). Management accounting statements may be more detailed than those prepared for external users, and do not normally need to meet any legal requirements.
Countries around the world organise their economic and financial activities in different ways so, inevitably, legal requirements, regulation and administrative procedures also vary across countries. So, if you take an accounting course in your own country or take accounting study abroad, the syllabus may be based on the system pertaining to that specific country, but the amount of institutional material that you need to know is kept to a minimum. Even though the material in such course is based on the system which is country-specific, however, accounting rules and guidelines around the world are becoming more similar (converging). This is part of a general drive to harmonise international accounting practices.
Some issues on accounting study:
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