Page 10 - LN

Theory base of Accounting 23

Theory Base of Accounting 2

s discussed in the previous chapter, accounting
Ais concerned with the recording, classifying and
summarising of financial transactions and events
and interpreting the results thereof. It aims at
providing information about the financial
performance of a firm to its various users such as
owners, managers employees, investors, creditors,
suppliers of goods and services and tax authorities
and help them in taking important decisions. The
investors, for example, may be interested in knowing
the extent of profit or loss earned by the firm during
LEARNING OBJECTIVES a given period and compare it with the performance
of other similar enterprises. The suppliers of credit,
After studying this chapter,
you will be able to: say a banker, may, in addition, be interested in
• identify the need for liquidity position of the enterprise. All these people
theory base of acco- look forward to accounting for appropriate, useful
unting; and reliable information.
• explain the nature of For making the accounting information
Generally Accepted meaningful to its internal and external users, it is
Accounting Principles important that such information is reliable as well
(GAAP);
as comparable. The comparability of information is
• state the meaning and required both to make inter-firm comparisons, i.e.
purpose of the basic
to see how a firm has performed as compared to
accounting concepts;
the other firms, as well as to make inter-period
• list the accounting
standards issued by comparison, i.e. how it has performed as compared
Institute of Chartered to the previous years. This becomes possible only if
Accountants of India; the information provided by the financial statements
• describe the systems is based on consistent accounting policies, principles
of accounting; and and practices. Such consistency is required
• describe the basis of throughout the process of identifying the events and
accounting. transactions to be accounted for, measuring them,
communicating them in the book of accounts,

2018-19