Difference between Book-keeping, Accounting, and Accountancy
(i) Book-keeping is a part of accounting, it is concerned with record keeping or maintenance of books of accounts.
(ii) Accounting is a wider concept than book-keeping. It starts where book-keeping ends.
(iii) Accountancy refers to the entire body of theory and practice of accounting.
Thus, we can say that book-keeping is a sub-field of accounting and accounting is a sub-field of accountancy. Diagrammatically, the relationship can be viewed as
Note Insert these terms stated outside with direction arrows inside the circles
Advantages of Accounting
The main advantages of accounting are:
(i) Helps in ascertaining financial position Through preparations of the position statement, accounting facilitates to ascertain the financial position of the business.
(ii) Assistance to Management Accounting helps the management in making business plans, making decisions, and exercising control over the affairs of the business.
(iii) Facilitates comparative study A systematic record enables a businessman to compare current years' results with those of past years' and in finding out significant factors leading to the change.
(iv) Facilitating raising loans Banks and financial institutions grant loans on the basis of growth prospects supported by the performance. Accounting makes available the information with respect to performance.
Disadvantages of Accounting
The main disadvantages of accounting are:
(i) Accounting is not fully exact Although, most of the transactions are recorded on the basis of evidence such as sales or purchases or receipt of cash, yet some transactions are purely based on estimates for ascertaining profit or loss.
(ii) Ignores the qualitative elements Qualitative elements like quality of employees, better public relations are ignored as accounting is confined to monetary transactions only.
(iii) Window dressing The term ‘window dressing’ means manipulation of accounts in a way so as to present the financial statements to show better position than the actual. This way, financial statements fail to provide a true and fair view of overall financial position of the business.
(iv) Not free from bias Financial statements are not free from bias as they are subject to personal judgment of the accountant. In various situations, the accountant has to make choice among various alternatives available.
Branches of Accounting
The branches of accounting are mainly classified as:
(i) Financial accounting The purpose of this branch of accounting is to keep a record of all financial transactions so that:
(a) The profit earned or loss sustained by the business entity during an accounting period can be worked out.
(b) The financial positon of the business as at the end of the accounting period can be ascertained.
(c) The financial information required by the management and other interested parties can be provided.
(ii) Cost accounting The purpose of cost accounting is to analyse the expenditure, so as to ascertain the cost of various products manufactured by the firm and fix the prices.
It also helps in controlling the costs and providing necessary costing information to management for decision-making.
(iii) Management accounting The purpose of management accounting is to assist the management in taking rational policy decisions and to evaluate the impact of its decisions and actions.
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