The history of accounting indicates the evolutionary pattern which reflects changing socio-economic conditions, and the enlarged purposes to which accounting is applied. In the present context, four phases in the evolution of accounting can be distinguished.
Stewardship
Accounting:
In
earlier times in history, wealthy people employed ‘steward’ to manage their
property. These stewards rendered an account of their stewardship to their
owners periodically. This notion lies at the root of financial reporting even
today which essentially involves the orderly recording of business transactions
commonly known as ‘book-keeping’. Indeed, the accounting concept and procedures
in use today for systematic recording of business transactions have their
origin in the practices employed by merchants in Italy during the 15th
century. The Italian method which specially began to known as ‘double entry
book-keeping’ was adopted by other European countries during the 19th
century. Stewardship accounting, in a sense, is associated with the need of
business owners to keep records of their transactions, the property and tools
they owned, as well as debs they owed, and the debt other owed them.
Financial
Accounting
Financial
accounting dates from the development of large-scale business and the advent of
the Joint Stock Company. This form of business which enables he public to
participate in providing capital in return for shares in the assets and the
profits of the company. His form of business organizations permits a limit to
the liability of their members to the nominal values of their shares. This
means that the liability of a shareholder for the financial debts of the
company is limited to the amount of a shareholder for the financial debts of
the company is the limited to the amount he had agreed to pay on the shares he
bought. He is not liable to make any further contribution in the operations (or
functioning) of a company in any country (for instance, the companies Act in
India) gives a legal form to the doctrine of stewardship which require that
information be disclosed to the shareholders in the form of annual income
statement and balance sheet such statements are generally known as annual
financial statements.
Briefly
speaking, the income statements is a statement of profit and loss made during
the year of the report; and the balance sheet indicates balance of the assets
held by the firm and the monetary claims against the firm as on a particular
date. He general unwillingness of the company directors to disclose more than
the minimum information required by the law, and the growing public awareness
have forced the governments in various countries of the world to extend
disclosure (of information) requirements.
The
importance attached to financial accounting statements can be traced to the
need of the society to mobilize savings, and channel hem with profitable
investments. Investors, whether they are large or small, must be provided with
reliable and sufficient information in order to be able to make sound
investments decisions. This is the most significant social purposes of
financial accounting.
Cost Accounting
The
industrial revolution in England presented a challenge to the development of
accounting as a tool of industrial management. Costing technique were developed
as guides to management actions. The increasing awareness on the part of
entrepreneurs and industrial managers of the benefit of using scientific
principles of management in the wake of scientific management movement led to
the development of cost accounting. Cost accounting is concerned with the
application of costing principles, methods and techniques to ascertain the
costs with a view to controlling them and assessing the profitability and
efficiency of the enterprise.
Management
Accounting
The
advent of management accounting was he next logical step in the developmental
process. The practice of using accounting information as a direct aid to
management is a phenomenon of the 20th century, particularly the
last 30-40 years. The genesis of modern management, with its emphasis on
detailed information on decision-making, provided a tremendous impetus to the
development of management accounting.
Management
accounting is concerned with the preparation and presentations of accounting
and controlling information in a form which assists management in the
formulation of policies, and in decision-making on various matters connected
with routine and/or non-routine operations of business enterprise. It is
through the technique of management accounting that managers are supplied with
information that they need for achieving objectives for which they are
accountable. Management accounting has, thus, shifted the focus of accounting
from recording and analyzing financial transactions, to using information for
decisions affecting the future. In this sense, management accounting has a
vital role to play in extending he horizons of modern business. While the
reports emanating from financial accounting, specially for outsiders, are
subject to the conceptual and legal framework of accounting, internal
reports-routine or non-routine are free from such constraints.
Social
Responsibility Accounting
Social
responsibility accounting is a new phase in the development of accounting and
owes is birth to increasing social awareness which has been particularly
noticeable over the last two decades or so. Social responsibility accounting
widens the scope of accounting by considering the social effects of business
decisions, in addition to the economic effects. Several social scientists,
statesman, and social worker all over he world have been drawing the attention
of their government and the people in their governments and people in their
countries to the danger posed to environment and ecology by unbridled industrial
growth. The role of business in society is increasingly coming under greater
scrutiny. The management is being held responsible not only for efficient
conduct of business as expressed in profitability, but also for what it
contributes to social well being and progress. There is a growing feeling that
the concepts of growth and profit as measured in traditional balance sheets and
income statements are too narrow to reflect the social responsibility aspects
of a business.
Human Resource
Accounting
Way
back in 1964, the first attempt to include figures on human capital in the
balance sheet was made by Hermansson which
later came o be known as human resource accounting (HRA). However there has
been a great socio-economics shift in the 1990s with the emergence of the
knowledge economy, a distinctive shift towards recognition of human and
intellectual capital in contrast to physical capital. Human Resource Accounting
is a branch of accounting which seeks to report and emphasis the importance of
human resource (knowledgeable, trained, loyal, and committed employees) in a
company’s earning process and total assets. It is concerned with “the
process of identifying and measuring data about human resource and
communicating this information to interested parties”. In simple words,
it involves accounting for investment in people to an organization. Generally,
the methods used for the valuing and accounting of human resource are either
based on costs, or on economic value of human resource. However, providing adequate
and valid information on human assets (capital), which are outside the concept
of ownership, in figures is very difficult. Nevertheless, to take decisions
regarding adequacy of human resource, and thus, encouraging managers to
consider investments in manpower in a more positive way.
Inflation
Accounting
Inflation
accounting is concerned with the adjustment in the value of assets (current and
fixed) and of profit in the light of changes in the price level. In a way, it
is concerned with the overcoming of limitations that arises in financial
statements on account of the cost assumption of stable monetary unit (these as
discussed in detail in the next unit). It thus aims at correcting the
distortions in the reported result caused by price level changes. Generally,
rising prices during inflation have the distorting influence of overstating the
profit. Various approaches have been suggested o deal with problem in inflation
accounting.
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