Unit-1 Basic Concepts Of Accounting
In this unit we intend to have an overview of Accounting and discuss its nature, scope and importance.
Name the parties interested in accounting information?
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- You have learnt that many people are interested in examining the financial information provided in the form of a Profit and Loss Account and a Balance Sheet. This helps them 1. To study the present position of business, 2. To compare its present performance with that of its past years, and 3. To compare its performance with that of similar enterprises.
- Owners: Owners contribute capital and assume the risk of business. Naturally, they are interested in knowing the amount of profit earned by the business and so also its financial position. If, however, the management of the business is entrusted to paid managers, the owners also use the accounting information to evaluate the performance of the managers.
- Managers: Accounting information is of immense use to managers. It helps them to plan, control and evaluate all business activities. They also need such information for making various decisions.
- Lenders: Initially the funds are provided by the owners. But, when the business requires more funds, they are usually provided by banks and other lenders of money. Before lending ; money they would like to know about the solvency (capacity to repay debts) of the enterprise so as to satisfy themselves that their money will be safe and the repayments will be made on time.
- Creditors : Those who supply goods and services on credit are called creditors. Like lenders, they too want to know about credit worthiness of the enterprise. This helps them to determine the limits up to which credit can be granted.
- Prospective Investors: A person who wants to become a partner in a firm or a person who wants to become a shareholder of a company, would like to know how safe and rewarding the proposed investment would be.
- Tax Authorities: Tax authorities of the Government are interested in the financial statements so as to assess the tax liability of the enterprise.
- Employees: The employees of the enterprise are also interested in knowing the state of affairs of the organization in which they are working, so as to know how safe their interests are in that organization.