Introduction to Accounting
The development of trade, industry and commerce world over has necessitated the recording of all business transactions clearly and systematically. During the past few decades, business has witnessed a sea-change from small units to big business houses and from manual operations to highly mechanised ones. The tremendous growth of business has increased the volume of business transactions manifold.
The necessity of recording all the transactions clearly and systematically cannot be over emphasized. Goods may be sold on credit to several persons. The buyer would pay the price of the goods to the vendor later. The vendor would like to know, from time to time that what amount is due and from whom. However strong one's memory may be, one cannot hope to remember all the details regarding all the transactions. Apart from this, the object of business is to earn profits; and every merchant likes to know at the end of a financial year that how much profit he has earned during the course of the year. For this purpose, he would need lot of factual information which can be derived from written records of transactions, provided such records have been properly kept. As such, proper maintenance of books of accounts. indispensable for a businessman. Moreover, accounting written records are also essential for the following type of information required:
(i) The total revenue during the period;
(ii) The expenditure during the period on salaries, wages, lighting, insurance, rent, taxes, etc.;
(iii) The amount of profit or loss of a financial year;
(iv) The amount of capital and causes of its increase or decrease;
(v) Nature and value of assets possessed by the business;
(vi) Nature and amount of liabilities;
(vii) Customers who owe to the business and the amount in each case;
(viii) Suppliers to whom the business has to make payments and the amount in each case;
and
(ix) Other facts for filing various tax returns.
Limited companies, Charitable organisations and now, limited liability partnerships are compelled by law to maintain proper records of their financial transactions. Although sole traders and partnership firms are not subject to legal obligation, it is very much in their interest to keep proper financial records for the survival as well as growth of the business.
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