NCERT Class XI Accountancy: Chapter1 – Introduction to Accounting - Part10

Class XI NCERT Accountancy Text Book Chapter 1 Introduction to Accounting is given below.

Test Your Understanding – I
Complete the following sentences with appropriate words:
(a) Information in financial reports is based on ………………… transactions.
(b) Internal users are the ………………… of the business entity.
(c) A ………………… would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ………………… in issuing financial reports to users. (e) ………………… users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ………………….
(g) The process of accounting starts with ………… and ends with …………
(h) Accounting measures the business transactions in terms of ………… units.
(i) Identified and measured economic events should be recording in ………… order.
The role of an accountant in generating accounting information is to observe, screen and recognise events and transactions to measure and process them, and thereby compile reports comprising accounting information that are communicated to the users. These are then interpreted, decoded and used by management and other user groups. It must be ensured that the information provided is relevant, adequate and reliable for decision-making. The apparently divergent needs of internal and external users of accounting information have resulted in the development of sub-disciplines within the accounting discipline namely, financial accounting, cost accounting and management accounting (refer box 3).
Financial accounting assists keeping a systematic record of financial transactions the preparation and presentation of financial reports in order to arrive at a measure of organisational success and financial soundness. It relates to the past period, serves the stewardship function and is monetary in nature. It is primarily concerned with the provision of financial information to all stakeholders.
Cost accounting assists in analysing the expenditure for ascertaining the cost of various products manufactured or services provided by the firm and fixation of prices thereof. It also helps in controlling the costs and providing necessary costing information to management for decision-making.
Management accounting deals with the provision of necessary accounting information to people within the organisation to enable them in decision-making, planning and controlling business operations. Management accounting draws the relevant information mainly from financial accounting and cost accounting which helps the management in budgeting, assessing profitability, taking pricing decisions, capital expenditure decisions and so on. Besides, it generates other information (quantitative and qualitative, financial and non-financial) which relates to the future and is relevant for decision-making in the organisation. Such information includes: sales forecast, cash flows, purchase requirement, manpower needs, environmental data about effects on air, water, land, natural resources, flora, fauna, human health, social responsibilities, etc.
As a result, the scope of accounting has become so vast, that new areas like human resource accounting, social accounting, responsibility accounting have also gained prominance.