unit-2-nature-and-scope-of-accounting

Unit-2 Nature and Scope of Accounting

This unit elaborates the need for accounting and then discusses the nature, scope and importance of accounting.

Name the different parties interested in accounting information, and explain why do they want it.





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Learning Pundits Content Team

Written on Apr 17, 2019 2:11:10 PM

Groups of people are interested in accounting information which may help them:

  • To understand the present position of the enterprise
  • To compare its present performance with that of its past years
  • To compare its present performance with that of similar enterprises

   

Parties interested in accounting information:

  • Owners: Owners contribute capital and assume the risk of business. Naturally, they are interested to know 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, supplemented by other information, is of immense use to managers. It helps them to plan, control and evaluate the operations of the business. They also need such information for various decision-making. 
  • Lenders: The funds are provided by the owners initially, but if the business requires more funds, they are provided by banks and other lenders of money. Before they lend money, they would like to know the solvency (i.e., capacity to repay debts) of the enterprise, so as to satisfy themselves that their money will be safe and that they can expect repayment on time.
  • Creditors: Those who supply goods and services on credit are called creditors. Like lenders, they too want to know about solvency of the enterprise, so as to decide whether credit can be granted or not.
  • Prospective investors: A person who wants to become a partner in a partnership concern 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.