Question

What are some of the key theories that link accounting with the notion of efficient markets? What do these theories find and what are the assumptions that underpin their methods? (1,000words essay question)

Answer 1

1a) According to american institute of certified Public Accountants (AICPA-1941) "Accounting is the art of recording,classifying and summarising in a significant manner and in terms of money,transactions and events which are,in part as least of a financial character and interpreting the results thereof".

Accounting is related to make efficient markets.Accounting also maintain records of business transactions and calculate the profit or loss of the business that also helpful to understanding the financial position of business as well as make future decision about efficient market for the business.

Accounting is the primary source of information about the day to day working and future planning of the organisation.Through record keeping, accountant performs this role. Now-a-days much of the recording function is computerised.This 'accounting information can be utilised to enable the management to take various business decisions) So, in order to satisfy needs of different people intereșted in accounting information, different branches of accounting have been developed.They can broadly. be classifled into the following categories.

(i) Financial Accounting: It is the original form of accounting. The object of financial accounting is to find out the result of operation (success or falure) and to provide information about the financial position (soundness/weakness) of the business. Financial accounting information relates to the past period and is expressed in monetary terms.

(1i) Management Accounting: Management accounting is concerned with accounting information that is useful to management. It draws all financial information from financial accounting.

(li1) Cost Accounting: It is the process of accounting for costs. It is the formal mechanisnm by which costs of products or services are ascertained and controlled.

Cost accounting is the improtant factor to make efficient market.Cost accounting is the process of accounting for costs.This process begins with recording of income and expenditure and ends with the preparation of statistical data.

Cost accounting is mathematically defined as follows:

Cost accounting= Costing+ Application of cost control methods+ Ascertainment of profitability.

The cost accounting is also record the cost,allocation of the cost,ascertainment of the cost, & Control of the cost that also help ful to decrease the cost of the business as well as make high volume profit so cost accounting is helpful to make efficient market.

A good costing system is an invaluable aid to management. Peter Drucker says, "Profitability is the sovereign criterion of the enterprise, and cost accounting greatly promotes it". Cost accounting helps the management in discharging their functions efficiently. It helps in maximising profit. It also benefits employees, creditors, government and society in general.

Advantages to Management

1. Cost accounting system identifies profitable and unprofitable activities. This helps to reduce or eliminate unprofitable activities.

2.Cost accounts furnish cost data to management for decision making such as make or buy, continue or shut down, accept or reject, sell below cost or not etc.

3.Cost accounting system helps to exercise control on material, labour and overhead costs through standard costing, budgetary control etc.

4.Cost accounting system helps in minimising losses and wastages relating to materials, idle time, idle capacity etc.

5.Cost accounting helps the management in fixing the selling price. It assists in the preparation of estimates and tenders.

6.Cost accounting system enables to measure organisational efficiency.

7.Cost accounting helps in appraising the performance of each division, department etc. on the basis of cost comparisons.

8.Cost data help management in determining future production policy.

9. Determination of cost centre helps management to define and fix responsibilities upon individuals.

10. Cost of closing stock of material, work-in-progress and finished goods can be easily obtained from cost records. This facilitates preparation of final accounts whenever required.

In today's globalised world, it is necessary to conduct business with maximum efficiency. Management needs to know detailed cost information on continuous basis for decision making. Cost accounting can meet this need of management.

  Advantages to Employees

1.Cost accounting facilitates the introduction of incentive schemes and bonus plans. In this way it offers better wages to employees.

2.A good costing system helps in increasing the productivity, profitability and prosperity of firms. On account of this, workers get better wages, job security etc.

3. Cost accounting minimizes the possibilities of misunderstanding between workers and employers.

Advantages to Creditors

1. Cost data helps the creditors to ascertain the solvency, profitability and future prospernty of an enterprise before they lend.

2.Cost accounting enables the creditors to ascertain whether the capital employed is effeetively utilised in the business.

3.Cost accounts help creditors to understand about the creditworthiness and financial soundie 3. of firms. Quality, cost of production, output per unit of resources, revaluation of asseis e are important criteria of credit worthiness.

Advantages to Government

1. Cost accounting helps government in formulating policies relating to export, import, taxation, price control measures, wage fixation etc.

2. Cost information helps in preparing national plans and budgets.

3.Cost accounting helps in levying excise duty, sales tax etc.

4.Government can run public sector enterprises efficiently with the help of cost accounts.

Advantages to Society

1. Cost accounting conducts a war against all kinds of waste. Therefore, consumers get quality products at reasonable prices.

2.Cost accounting brings stability by improving managerial and operating efficiency.

3.Cost saving and cost reduction efforts carried out by various organisations help in curbing inflationary tendencies in the economy.

4. Cost accounting provides continuous employment opportunities to various sections of society.

So cost accounting is improtant factor to make efficient market,that also helpful track expenses of the business,so that also helpful to decrease the wastage of the business ,in the way that being strong the market of the business.

Thanking you.......!