Question

What is accounting? Discuss its Advantages and Disadvantages in a detailed manner?

Answer 1

Accounting is the process of business for dealing with all sorts of financial information. This is the language of business of how the data could be analyzed and recorded so that it carries certain meaning for information and evaluation.

Example: Payment of salary to the staffs of $20,000 should appear in the income statement under the head “expenses”, since this is recurring in nature. Therefore, it should not be considered as capital expenditure in the balance sheet.

Advantages:

1.It helps the users (banks, suppliers, lenders, etc) to make economic decision. Suppose net income of the business is very low, suppliers may not be interested for supplying any more.

2. It helps to take future decision. Management of the business wants to know business’s performance. This is required for their expansion decision. Suppose the sales revenue of a firm is very low in an area; the firm may stop selling there and try to get another prospective market.

3. This is the ultimate proof of ethical conduct. If the accounting records are proper no one can blame the business of indulging misconducts. Records are interrelated; therefore, very much evidential and verifiable.

Disadvantages:

1.Accounting is based on different ideas. If such ideas differ outcomes must differ. Suppose there are different depreciation rates as on straight-line method, and on diminishing method; net income must be different in these two cases.

2. Business is also based on qualitative factors, such as availability of market, brand loyalty, utility facility, etc. These are not evaluated through accounting.