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In: Accounting

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

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

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Expert Solution

Meaning of Accounting

Accounting is language of business. Accounting is systematic process which consists of identifying, measuring, classifying, recording, verifying and communicating the financial transaction information to stakeholders.

Accounting data calculate the profit and loss of firm and value the firm business.

Accounting keeps records of transaction for years. Need of accounting is arised because the human nature has tendency to forget but he maintain the accounting records, businessman will not be required to remember the transaction for long period of time.

Advantages of Accounting

There are many advantages of accounting. Accounting in today's world becomes the neccessity due to raid growth of business. some of the advantages are listed below:-

Serial Number Advantage Explanation
1 Maintain Records Accounting Keeps the records of financial transactions in a systematic matter. Past Hostoric accounts can also traced if proper accounting is done.
2 Decision Making Financial accounts helps managers in analysing the situation of the business. Depending the situation of business as per accounting records, optimal decisions can be taken
3 Financial Statement and Valuation Accounting helps in preparation of financial statements and various Budgets, variances and other business data. Valuation of company can also be done based on the accounting records.
4 Tax Calculation Taxation matter can also be handled wisely if strong accounting records are maintained otherwise hefty amount of taxes can be levied if there is no proof of financial transactions due non preparation of accounting records
5 Information to stakeholders Accounting provides various information to its stakeholders like shareholders, debenture holders, bond holders, creditors, goverment for investment and other matter

Disadvantages of accounting

There are various disadvantages of accounting. Some of those are as follows :-

Serial Number Disadvantage Explanation
1 Non Monetary item not Recorded Accounting data keeps the records of only transactions having monetary value. Non Monetary transactions are not considered in accounting
2 Manipulation Accounting records can easily be manipulated showing the wrong transactions further misleading the users of financial statements
3 Inaccurate Estimates Sometimes accounting requires estimation of certain financial transactions which may be inaccurate and further misleading the users of financial statements
4 Time Value of Money Money value is not stable. It changes over time. Accounting data does not shows the effect of time value of money but only shows the position of accounting data on a single day.

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