The functions of accounting are:

 i) Identifying financial transactions,

 ii) Recording of transactions which are financial in character,

iii) Classification of transactions,

iv) Summarising the transactions which also includes preparation of trial balance, income statements and balance sheet,

v) Interpretation of financial results, and

vi) Communicating the interpreted financial results in a proper form and manner to the proper person.

EVOLUTION OF ACCOUNTING 

Stewardship accounting-

In earlier times in history, wealthy people employed `stewards' to manage their property. These stewards rendered an account of their stewardship to their owners periodically. This notion lies at the root of financial reporting even today which essentially involves the orderly recording of business transactions, commonly known as 'book-keeping'. Indeed the accounting concepts and procedures, in use today for systematic recording of business transactions have their origin in the practices employed by merchants in Italy during the 15th century. The Italian method which specifically began to be known as `double entry book-keeping' was adopted by other European countries during the 19th century. Stewardship accounting, in a sense, is associated with the need of business owners to keep records of their transactions, the property and tools they owned, debts they owed, and the debts others owed them.

Financial Accounting Financial accounting dates from the development of large-scale business and the advent of Joint Stock Company (a form of business which enables the public to participate in providing capital in return for `shares' in the assets and the profits of the company). This form of business organisation permits a limit to the liability of their members to the nominal value of their shares. This means that the liability of a shareholder for the financial debts of the company is limited to the amount he had agreed to pay on the shares he bought. He is into liable to make any further contribution in the event of the company's failure or liquidation. As a matter of fact, the law governing the operations (or functioning) of a company in any country (for instance the Companies Act in India) gives a legal form to the doctrine of stewardship which requires that information be disclosed to the shareholders in the form of annual income statement and balance sheet.

Cost Accounting

The industrial revolution in England presented a challenge to the development of accounting as a tool of industrial management. Costing techniques were developed as guides to management actions. The increasing awareness on the part of entrepreneurs and industrial managers for using scientific principles of management in the wake of scientific management movement led to the development of cost accounting. Cost accounting is concerned with the application of costing principles, methods and techniques for ascertaining the costs with a view to controlling them and assessing the profitability and efficiency of the enterprise.

Management Accounting-

Management accounting is concerned with the preparation and presentation of accounting and controlling information in a form which assists management in the 'formulation of policies and in decision-making on various matters connected with routine or non-routine operations of business enterprise. It is through the techniques of management accounting that the managers are supplied with information which they need for achieving objectives for which they are accountable. Management accounting has thus shifted the focus of accounting from recording and analysing financial; transactions to using information for decisions affecting the future. In this sense, management accounting has a vital role to play in extending the horizons of modern business. While the reports emanating from financial accounting are subject to the conceptual framework of accounting, internal reports-routine or non-routine are free from such constraints.

Social Responsibility Accounting

 Social responsibility accounting is a new phase in the development of accounting and owes its birth to increasing social awareness which has been particularly noticeable over the last two decades or so. Social responsibility accounting widens the scope of accounting by considering the social effects of business decisions; in addition to the economic effects.

The management is being held responsible not only for efficient conduct of business as expressed in profitability, but also for what it contributes to social well being and progress. There is a growing feeling that the concepts of growth and profit as measured in traditional balance sheets and income statements are too narrow to reflect the social responsibility aspects of a business.

Human Resource Accounting-

Way back in 1964 the first attempt to include figures on human capital in the balance sheet was made by Hermansson which later. came to be known as Human Resource Accounting. However there had been a great socio-economic shift in the 1990's with the emergence of "Knowledge economy", a distinctive shift towards recognition of human and intellectual capital in contrast to physical capital. Human Resource Accounting is a branch of accounting which seeks to report and emphasis the importance of human resources (knowledgeable, trained, loyal and committed employees) in a company's earning process and total assets. It is concerned with "the process of identifying and measuring data about human resources and communicating this information to interested parties". In simple words it involves accounting for investment in people and replacement costs as well as accounting for the economic values of people to an organisation. HRA is a managerial tool providing valuable information to the top management to take decisions regarding adequacy of human resources and thus encouraging managers to consider investment in manpower in a more positive way.

Inflation Accounting

Inflation Accounting is concerned with the adjustment in the value of assets (current and fixed) and of profit in the light of changes in the price level. In a way, it is concerned with the overcoming of limitations that arise in financial statements on account of the cost assumption (that is recording of the assets at their historical or original cost) and the assumption of stable monetary unit. It thus aims at correcting the distortions in the reported results caused by price level changes. Generally, rising prices during inflation have the distorting influence of overstating the profit.

Taxation accounting-

With a development of a comprehensive taxation system , it has become indispensable to note down the taxes paid to government in any form whether it is direct tax or indirect tax. The taxation accounting focuses on recording the taxes due & taxes paid in advance. There would be set of at the end of the year in order to find the tax due in the hands of the assessee( the entity).

ACCOUNTING AS AN INFORMATION SYSTEM

Accounting as a social science can be viewed as an information system since it has all the features of a system. It has its inputs (raw data), processes (men and equipment), and outputs (reports and information).

There are several groups of people who have a stake in a business organization managers, shareholders, creditors, employees, customers, etc. Additionally, the community at large has economic and social interest in the activities of such organisations. This interest is expressed at the national level by the concern of government in various aspects of the firms' activities, such as their economic wellbeing, their contribution to welfare, their part in the growth of the national product, to mention only a few examples

Objectives of Accounting-

The basic objectives of accounting is to provide necessary information to the persons interested who will make relevant decisions and form judgement. The persons interested in the business are classified into two types :

1. Internal users, and
2. External users.

Objectives of Accounting