Evolution of Financial Accounting

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Questions and Answers

What led to the emergence of financial accounting?

The development of stewardship accounting
The concept of joint stock company and divorce of ownership from management (correct)
The emergence of large-scale enterprises in the form of sole proprietorships
The growing social awareness about the undesirable by-products of economic activities

What is the primary purpose of financial statements?

To improve the quality of management decisions
To provide periodic performance reports and financial position (correct)
To aid management decision-making
To account for the social cost incurred by business

What is the focus of Management Accounting?

To account for the social cost incurred by business
To improve the quality of financial statements
To aid management decision-making (correct)
To provide financial information to investors

What led to the development of Management Accounting?

The need for better management decision-making (A) Signup and view all the answers

What is the primary goal of Social Responsibility Accounting?

To account for the social cost and benefit of business (B) Signup and view all the answers

What contributed to the development of financial accounting?

The changing relationships between owners, managers, and investors (D) Signup and view all the answers

What is the primary characteristic of financial accounting?

It is a system to identify, measure, and communicate useful information (D) Signup and view all the answers

What is the current stage of Social Responsibility Accounting?

It is in the formative process (D) Signup and view all the answers

What is the limitation of accounting as a language?

It is based on certain assumptions and conventions (C) Signup and view all the answers

What is one of the roles of an accountant in company formation?

To advise on the formation of a company (A) Signup and view all the answers

Which of the following factors cannot be measured in terms of money and hence do not find a place in the accounts?

Loyalty and skill of the personnel (D) Signup and view all the answers

What is the primary responsibility of a cost accountant?

To continuously report cost data and related information (B) Signup and view all the answers

What is the limitation of the Balance Sheet?

It shows the position of the business on the day of its preparation (D) Signup and view all the answers

What is an important aspect of an accountant's information system?

To ensure comparability of financial statements (B) Signup and view all the answers

What does accounting ignore?

Changes in some money factors like inflation (C) Signup and view all the answers

What is one of the onerous duties of an accountant in case of company insolvency?

To act as a receiver in case of a debenture holder's default (D) Signup and view all the answers

When do accounting principles conflict with each other?

On certain occasions (A) Signup and view all the answers

What is the role of an accountant in share registration work?

To undertake the work involved in registering share transfers and new issues (C) Signup and view all the answers

What is an example of an accounting estimate that depends on personal judgement?

All of the above (D) Signup and view all the answers

What is an important characteristic of an accountant's information system?

It should provide a regular flow of information both horizontally and vertically (A) Signup and view all the answers

What is the limitation of financial statements?

They are never free from subjectivity (A) Signup and view all the answers

What is the benefit of an accountant's information system to management and investors?

It enables comparability of financial statements (B) Signup and view all the answers

What is the limitation of accounting in assessing the worth of an enterprise?

It cannot measure certain factors that contribute to the worth of the enterprise (B) Signup and view all the answers

What is the role of an accountant in case of company liquidation?

To take on the duties of a liquidator (A) Signup and view all the answers

What is the primary role of a chartered accountant in an industry?

To translate the organization's aims into financial expectations (B) Signup and view all the answers

What is the main difference between public sector enterprise accounting and ordinary government accounting?

The form of accounting followed (D) Signup and view all the answers

What is the primary responsibility of a chartered accountant in a public sector enterprise?

To prepare financial reports for the general public (C) Signup and view all the answers

What is the role of a chartered accountant in framing fiscal policies?

To develop new techniques for fiscal policy determination (A) Signup and view all the answers

What is the key to the success of a business enterprise?

Effective accounting and business knowledge (B) Signup and view all the answers

What is the primary goal of a chartered accountant in an industry?

To translate organizational aims into financial expectations (B) Signup and view all the answers

What is the main focus of a chartered accountant in a public sector enterprise?

To provide information to the general public (C) Signup and view all the answers

What is the role of a chartered accountant in advancing trade, commerce, and industry?

To develop new techniques and services (B) Signup and view all the answers

What is the primary reason for accountants in industry and practice to disclose more information about corporate results?

To ascertain the state of the economy (D) Signup and view all the answers

According to the role of chartered accountants, what should they aim to do?

Not allow any individual to gain at the cost of the nation (C) Signup and view all the answers

What is the primary objective of accounting?

To record, classify, and summarise transactions and events of a financial character (C) Signup and view all the answers

What can be divided into two basic parts?

Accounting procedure (D) Signup and view all the answers

What is the positive role of chartered accountants?

To do their best to encourage efficiency in individual business units and encourage social objectives (B) Signup and view all the answers

What is the primary goal of chartered accountants in a welfare state?

To encourage efficiency in individual business units and social objectives (C) Signup and view all the answers

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Study Notes

Evolution of Accounting

Stewardship accounting was prevalent until the emergence of large-scale enterprises in the form of public limited companies.
The concept of financial accounting emerged with the concept of joint stock company and divorce of ownership from management.
Financial statements (profit and loss account and balance sheet) were developed to safeguard the interests of shareholders and investors.

Development of Accounting

Financial accounting emerged as an information system to identify, measure, and communicate useful information for informed judgments and decisions by a broad group of users.
Management Accounting emerged in the 20th century to aid management decision-making and improve the quality of management decisions.
Social Responsibility Accounting is a developing concept that aims to account for the social cost incurred by business as well as the social benefits created.

Limitations of Accounting

Accounting figures are subject to various constraints and limitations.
Assumptions and conventions used in accounting become limitations.
Financial statements are not free from subjective factors, such as personal judgment of the accountant.
Examples of limitations include:
- Certain factors, like loyalty and skill of personnel, cannot be measured in terms of money.
- Balance Sheet shows the position of the business on a specific date, not in the future.
- Accounting ignores changes in some money factors, like inflation.
- Accounting principles may conflict with each other.
- Personal judgment of the accountant is required in certain estimates.

Role of Accountants

Accountants play a crucial role in various aspects, such as:
- Share registration work
- Company formation
- Receiverships, liquidations, and arbitrations
- Cost accounting and information services
- Industry and public sector enterprises
- Framing fiscal policies and promoting economic growth

Chartered Accountants

Chartered Accountants play a vital role in performing important functions, such as accounting, costing, budgetary control, estimating, and treasury.
They have a positive role to play in the determination of fiscal policies and advancement of trade, commerce, and industry.
They should develop new techniques and prepare themselves for new fields of service.
They have a social obligation to disclose greater information regarding corporate results.

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