Accounting For Proprietorship Firm
Accounting is the language of business. Business information is expressed by using accounting language. Information on various business activities, viz. financing, investing and operating activities; etc. are communicated through accounting medium to the users of this information.
In the past, accounting was limited to book keeping only but now its scope
has been widened to include other activities, such as tax accounting, cost
accounting, management accounting, social accounting, green accounting etc.
Accounting has also its influence on business planning and forecasting through
analysis of financial statement.
Progress and prosperity of business depend upon the adoption of proper
accounting practices. But most of the small business firms, engaged in
trading activities, do not give proper attention towards accounting of their
business transactions. They usually concentrate more on selling and buying
activities of their products and are not serious on maintaining proper books of accounts.
Accounting is a process which follows some prescribed rules and
steps to record the daily business transactions in order to get the results
thereof. As and when a transaction takes place in the business, the effect of
that transaction is put to accounting process and recorded in the proper
books of accounts. Record keeping in a business firm means to retain
records of all necessary information in all aspects related to the business
activities. Such business activities may be:
(i) Purchases of goods and services and consumables;
(ii) Sales of goods and services;
(iii) Payment received from the debtors;
(iv) Payment made to the suppliers;
(v) Purchase and sale of assets;
(vi) Taking of loans and settlement thereof,
(vii) Payment to the staff;
(viii) Transactions relating to capital and withdrawal thereof ;
(ix) Payment for other activities related to the business, e.g., rent, hire charge, electricity and other operating expenses.
The above list is not exhaustive. There may be various types of items
which require systematic recording in proper books of accounts. A
systematic record keeping procedure also ensures proper preservation for
evidential purposes, accurate and timely availability of all required data. It
also facilitates control over the activities of the organisation by the proper
authorities (owners, management etc).