Tuesday, October 23, 2018

PRINCIPLES OF ACCOUNTING VOLUME 1 BY PATRIOT ODUNARO B.J.


Accounting is both a profession and an academic discipline. It is defined by different people in different ways from different perspectives.

American Institute of Certified Public Accountants defined accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character, and interpreting the result thereof ”.


Frank Wood (1995: 181) defined accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information”.

The definition of accounting, therefore, is the process of identifying, recording, analysis, classifying, summarizing, interpreting and communicating financial data of an organization to enable users make assessments and decision.

Accounting acts as the language of business. It communicates in accounting terms, what should be paid to a supplier or by a customer, the prices for a product or service the value of an asset. It looks back at the past to record, analyze and report as a steward and also looks into future and assists management with decision making and control.

Book-Keeping is also defined by different people in different ways from different perspectives.

Frank Wood (1995: 181) defined Book-Keeping as “being concerned with the work of entering information into accounting records and afterwards maintaining such records properly”.

Book-Keeping is an integral part of accounting. It is defined as the art of recording financial transaction in such a manner that the financial position of a business can be known at any time. What we are saying here, is that whenever a financial transaction takes place, there must be a proper recording of such transaction in order to reflect the dual aspect of a transaction i.e. the giving aspect and the receiving aspect. It is the recording aspect of a transaction that is referred to a double entry book-keeping.

1.2  IMPORTANCE OF ACCOUNTING AND BOOK-KEEPING

The following are the importance of accounting and book-keeping:
i.        It helps to determine the profitability of a business concern.
ii.      The assets and liabilities of a business are shown.
iii.    The records show the income and expenditure.
iv.    The records are used by the tax department for tax assessments.
v.      The records provide a means by which the finances of a business are controlled.
vi.    Book-Keeping provides permanent records for all financial transactions.

1.3     THE NEED FOR ACCOUNTING
The need for accounting can be seen from the following perspectives:
i.        Stewardship Reporting: It is necessary for the managers to report to the owners of the business on their activities during the period under review.

ii.      Performance Review: It is natural of human beings to seek enhancement in their businesses. For example, consider the case of  Agbo Ma Biwon Nigeria Limited who has the following data:
Years                         Capital                 Profit            Return on Capital
                                     #                            #                      %
2010                          27,000                  5,400                  20
2011                          40,500                18,225                  45
Here, there is a relative increase in profit in 2011 and as a result of increase in return on capital, this mean high performance of the business under review.

iii.    Business Decision Making: Accounting helps in analyzing complex business decision problems using quantitative techniques to suit the business environment.

iv.    Statutory Compliance: Companies and Allied Matters Decree 1990 requires all Limited Liability Companies to keep accounts of their financial transactions in a specified manner.

v.      Requirement for Lending: Financial statements are usually demanded before banks give loan.

vi.    Tax Purposes: Government relies on audited financial statements for determining the taxes payable on the profits and / or other incomes of an individual or company.

FOR MORE INFORMATION CONTACT PATRIOT ODUNARO B.J. ON 08038454008 

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