So then, theories also ought to be changed. Increase in Profitability: Costs are controlled with help of budgets and profits targeted are achieved. Therefore, it is said to be a statistical procedure for the collection, classification and summarization of financial information. Normative accounting theory also evolves possible theories which are independent of current practice and help in solving critical problems in future. It establishes budgets and standard costs and actual cost of operations, processes, departments or products and the analysis of variances, profitability and social use of funds. Scope of Accounting The need of a system of accounting was felt by man early in the history of trade and commerce.
Managerial accounting places a crucial role in financial management. If the assets exceed liabilities, it is financially healthy, i. In view of this, a commercial organization always tries to expand its business, increase its sales and reduce operating expenses. In this case, routine business goes on simultaneously with the audit work. Difficulty in Coordination: Effective implementation of budgetary control depends upon proper coordination among various departments as the performance of a department depends on the work of other departments and vice versa. Even though, some other objectives are briefly explained below. Help in Organizing Organizing refers to allocation of company resources to various departments and assignment of duties to employees at.
Based on the different results, different recommendations may be provided for the growth and development of a business concern. To find out the net profit or net loss or surplus or deficit for any particular period. Special Cost and Economic Studies The special cost and economic studies are considered in the management accounting system in order to increase the profits of the concern. Meaning and Definition of Budgetary Control: Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future. Objectives of Accounting We have identified 13 objectives that accounting serves.
It may be stated in this connection that a costing system must be a profitable investment and should produce benefits commensurate with the expenditure incurred on the system. So in such a case there is always a possibility of a distinct contrast with real world events or problems. Like a dictator, in some areas accountants have no choice of their own but to opt for practices other than those stated in the accounting standards. A man does not anything without any sound reason. Though there is no legal obligation on an ordinary trader to keep the records, every business house finds it essential and convenient to keep the systematic records so as to know where exactly it stands. To ascertain the profitability of each of the products and advise management as to how these profits can be maximised. General Principles of Cost Accounting : Following are the main principles of Cost Accounting: 1.
But it should be remembered that it is not a pure science or a complete science because, like general science or Natural Science, the principles of accounting are not always all-proof. Realistic Targets: The targets set should be realistic so that they are achievable and budgets should not frustrate the workers by fixing unrealistic targets. As accounting deals with financial transactions, so every accounting work is also based on reasoning. Again, theories emerge out of constant observation, analysis, examination of the theoretical problems and procedures. Following legal bindings and prohibition As all kinds of business organizations have to abide by some legal bindings and prohibitions, they are to maintain their accounts accurately. So, these theories are advises in nature.
Objectives of Accounting Standards : In earlier days, accounting was just used for recording business transactions of financial nature. Prevention of errors or frauds. In these cases, the accounts maintained in a disciplined way become easily acceptable to the interested institutions or authorities. Vouching is a technical term which refers to the inspection by the auditor of documentary evidence supporting and substantiating a transaction. Though there is no legal obligation on an ordinary trader to keep the records, every business house finds it essential and convenient to keep the systematic records so as to know where exactly it stands.
To ascertain the cost per unit of the different products manufactured by a business concern. There is always a reason behind each and every action of a human being. Here one has mix-up his imagination with practical reality. Accounting Practice is what is actually done in the way of recording and analyzing accounting activities. Rationally analyzing to predict future cash flow problems and maintaining regularity in liquidity of. Theories are framed by actually analyzing of accounting Practices.
If care is taken to devise a costing system to suit the requirements of the industry and avoid unnecessary elaboration, expenditure incurred in installing and operating the system will be a profitable investment and will bring adequate return. A developed language reflects a developed society. Inter-departmental rivalries may endanger the performance of the whole organisation. Accounting standards provide a concrete theory base to the process of accounting. Thus a combination of reality and imagination constitutes a subject of Arts. It also calculates the profits or loss of a business unit during a certain period. To be absolutely able to solve any real world accounting problem, an accountant should have sufficient practical experience aided by adequate theoretical knowledge.
But irregularity means doing the work crossing to the line of rules, regulation and laws. Thus, cost accounting has the following features: 1. Accounting theory and Accounting Practices are absolutely closely related. Accounting principles and postulates are based on sound reasoning. There is no opportunity of discussing those theories in accounting. The nature and values of liabilities outstanding.