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14 Accountancy

Box 4
Different Roles of Accounting

ü As a language – it is perceived as the language of business which is used to
communicate information on enterprises;
ü As a historical record- it is viewed as chronological record of financial transactions
of an organisation at actual amounts involved;
ü As current economic reality- it is viewed as the means of determining the true
income of an entity namely the change of wealth over time;
ü As an information system – it is viewed as a process that links an information
source (the accountant) to a set of receivers (external users) by means of a channel
of communication;
ü As a commodity- specialised information is viewed as a service which is in demand
in society, with accountants being willing to and capable of providing it.

1.5 Basic Terms in Accounting

1.5.1 Entity
Entity means a reality that has a definite individual existence. Business entity
means a specifically identifiable business enterprise like Super Bazaar, Hire
Jewellers, ITC Limited, etc. An accounting system is always devised for a specific
business entity (also called accounting entity).

1.5.2 Transaction
A event involving some value between two or more entities. It can be a purchase
of goods, receipt of money, payment to a creditor, incurring expenses, etc. It
can be a cash transaction or a credit transaction.

1.5.3 Assets
Assets are economic resources of an enterprise that can be usefully expressed
in monetary terms. Assets are items of value used by the business in its
operations. For example, Super Bazar owns a fleet of trucks, which is used by
it for delivering foodstuffs; the trucks, thus, provide economic benefit to the
enterprise. This item will be shown on the asset side of the balance sheet of
Super Bazaar. Assets can be broadly classified into two types: current and
Non-current (Figure 1.4).

2018-19