Accounting
has rightly been termed as the language of business. The basic function of a
language is to serve as a means of communication. Accounting also serves this
function. It communicates the results of business operation to various parties
who have some stake in the business viz the proprietor, creditor, investors,
government and other agencies. Though accounting is generally\ associated with
business yet it is not only business which make use of accounting. Persons like
housewives, government and other individuals also make use of accounting. For
example, in case the housewife records her transactions regularly, she can
collect valuable information about the nature of her receipts and payments. For
example she can find out the total amount spent by her during a period on
different items say milk, food, education, entertainment etc. Similarly she can
find the source of her receipt as salary, rent from property, cash gifts from
her relatives thus at the end of the period she can see for herself about her
financial position i.e. what she owes and what she owns. This will help her in planning
her future income and expenses (or making out a budget) to a great extent.
- The need for accounting is all the more greater for a person who is running a business. He must know: - (i) what he owns (ii) who he owes (iii) whether he has earned a profit or suffered a loss on account of running a business (iv) what is his financial position i.e. whether he will be in a position to meet all his commitments in the near future or he is in the process of becoming a bankrupt.
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