Accounting Theory
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Accounting Theory
NEED FOR ACCOUNTING
Business is one of the sources of earning income. Whenever a business is started, it requires investment of certain amount which is called as capital. With this amount of capital the businessman may deal either with trading business or manufacturing business. In a trading business, he will buy goods at a lesser price and sells the same to others at a higher price. In case of manufacturing business, he has to buy raw materials and incur other expenses in the form of wages and salaries, rent, power, insurance, tax, transport, postal and telephone expenses and so on, in the course of production and distribution of goods. In a small sized business the transactions are simple and less in number. But in a large sized business the transactions are numerous. These business transactions enable the businessman to know the result of his business which can be profit or loss for a given period of time. In order to know the result of his business, a businessman has to remember all the transactions of his business. However, owing to lack of memory it is not possible for anybody to remember all the transactions over a period of time. This has given rise to maintenance of a set of accounting books in which business transactions are chronologically recorded. The systematic recording of business transactions enable the businessman to account for every transaction without missing any item. Such a system of maintenance of a set of accounting books to record business transactions is known as book keeping system.
ORIGIN OF BOOK KEEPING
The practice of record keeping existed ages before the formal recording of history. Barbarians began to keep records by scratching them on rocks. From there crude forms of picture writing, the process of rudimentary bookkeeping began. The Italians were the leading bookkeepers and record makers for centuries. As early as 813 A.D., Bookkeepers were recognised in Italy and from these men came many of
Accounting Theory
NEED FOR ACCOUNTING
Business is one of the sources of earning income. Whenever a business is started, it requires investment of certain amount which is called as capital. With this amount of capital the businessman may deal either with trading business or manufacturing business. In a trading business, he will buy goods at a lesser price and sells the same to others at a higher price. In case of manufacturing business, he has to buy raw materials and incur other expenses in the form of wages and salaries, rent, power, insurance, tax, transport, postal and telephone expenses and so on, in the course of production and distribution of goods. In a small sized business the transactions are simple and less in number. But in a large sized business the transactions are numerous. These business transactions enable the businessman to know the result of his business which can be profit or loss for a given period of time. In order to know the result of his business, a businessman has to remember all the transactions of his business. However, owing to lack of memory it is not possible for anybody to remember all the transactions over a period of time. This has given rise to maintenance of a set of accounting books in which business transactions are chronologically recorded. The systematic recording of business transactions enable the businessman to account for every transaction without missing any item. Such a system of maintenance of a set of accounting books to record business transactions is known as book keeping system.
ORIGIN OF BOOK KEEPING
The practice of record keeping existed ages before the formal recording of history. Barbarians began to keep records by scratching them on rocks. From there crude forms of picture writing, the process of rudimentary bookkeeping began. The Italians were the leading bookkeepers and record makers for centuries. As early as 813 A.D., Bookkeepers were recognised in Italy and from these men came many of