Capitalism

Economic Systems

Any society, whether it is rural without any advancements or it is specialized, must somehow confront three fundamental and inter-dependent economic problems.

1. What and how much to produce? 2. How to produce? 3. For whom to produce?

These three questions are fundamental and common to all economic but different economic systems differ in the fact that they try to solve these differently. Over the past two hundred years, differentphilosophies have developed in regard to the accomplishment of the economic function. The basic nature of all economic systems is the same. It is the role of the individuals and the governments that are quite different.

Capitalism

Definition

Under Capitalism, all means of production are the property of private individuals and firms. They are free to use them with a view of making profit or not to use them, if it so suits them. The desire for profit is the sole consideration with the property-owners in the use of their property. Besides free and unfettered use of their property, everybody is free to enter into any contract with other fellow-citizens for his profit.

What to produce, how to produce and for whom to produce-all these central problems of economics are settled by the free working of the forces of demand and supply.

Salient Features of Capitalism

1. Right of Private Property
Everybody has a right to acquire private property, to keep it, and after his death, to pass it on to his heirs. The result of this system is that inequalities of wealth distribution are perpetuated.

2. Freedom of Enterprise
This freedom implies three things: a) freedom of enterprise b) freedom of contract and c) freedom to use one’s property. Everybody is free to take up any occupation that he likes and to enter into contracts or agreements with his fellow-citizens in a manner most profitable to him. Every citizen has the freedom to form any firm or company and set up a factory anywhere hi likes.

3. Freedom of Choice by the Consumers
Every consumer enjoys a freedom of choice of the commodities and services that he wishes to consume. It is the consumers likes and dislikes which determine the magnitude and pattern of production.

4. Profit Motive
The profit motive of individuals governs business enterprise. Those commodities and services are produced under capitalism, which are expected to yield maximum profit rather than social benefit.

5. Class Conflict
The society has been divided into two classes the “Haves” and “Have-Nots” which are constantly at war with each other class conflicts is inherent in capitalism.

6. Un-Coordinated Nature
There is no conscious regulation or central direction of economic activity. Every thing seems to go on automatically. Somehow the demand and supply adjust themselves to each other. Price serves as the signpost or the signal.

7. Entrepreneurs Role
The entire productive machinery of the country is under the direction of the entrepreneur. It is he who hires the other factors of production and undertakes to pay them. Everything hinges on him.

8. Control With Risks
This has been called the Golden Rule of Capitalism. He who risks his money must also control the business.

9. Competition
The producers compete with one another is selling the commodity as much as they can through advertisement. On the other hand, there is also competition among the buyers to obtain the commodity who did against one another and offer higher prices for the purpose. Similarly, there is competition among workers for jobs.

10. Importance of Price System
Capitalism is said to be governed by price. It is the price which equates the demand and supply of commodities and factors of production. Price is a signal which guides the producers as to what to produce and what not to produce. A higher price is also warning to the consumers to cut down their consumption.

11. Economic Inequalities
A few are very rich indulging in all sorts of conceivable luxuries, whereas the masses are not able to get even two square meals a day. The gulf between the rich and poor is ever widening.

Merits of Capitalism

1. Automatic Working
Capitalism does not require any central directing authority for its functioning. It functions automatically through the price-mechanism. It at any time, there is some disturbance in the economy, it is rectified through price change.

2. Higher Efficiency and Incentive of Hard Working
Under capitalism workers and entrepreneurs are encouraged to work hard to earn higher profits and higher wages. Hence the entire manpower resources of the country work the hardest (In this way the national output increases and economic development is accelerated).

3. Higher Rate of Capitalism Formation
People under capitalism have the right to hold property and pass it on to then heirs and successors. Owing to this people save a part of their income so that it can be invested to earn more income and leave larger property for their heirs. This accelerates economic growth.

4. Economic Development and Prosperity
The lure of profit compels the entrepreneurs to take risks and to conquer new fields in production. Capitalism offers great incentive for saving and large opportunities for investment. It encourages innovation and technological progress. It is thus conductive to economic growth and prosperity.

5. Optimum Utilization of Resources
Every producer and entrepreneur tries to use the productive resources at his disposal in the most economical manner in order to make maximum profit. In this way, capitalism encourages the most efficient use of the resources of the country.

6. Just System
The richest reward under capitalism goes to the ablest, the most daring as well as the most prudent entrepreneur. A man who shows extraordinary resourcefulness and pluck makes the highest profits.

7. Democratic
In the capitalistic economy an attempt is made to adjust production to the consumer wishes. They consume that they like and not what is supplied to them. The consumers constitute the general public. Hence, the system is democratic.

8. Encouragement to Enterprise
Capitalism discourages the entrepreneurs to take risks and adopt bold policies. Higher the risk greater is the profit. They also make innovations in order to cut their costs and maximize their profits. Hence, capitalism brings about a great technological progress in the country.

9. Flexibility
One of the principal advantages of capitalism is its flexibility and adaptability, which has enabled it to function from time to time according to changing circumstances and emerge victorious.

Demerits of Capitalism

1. Wasteful Competition
Competition is a sheer waste. Colossal expenditure is incurred on advertisement and salesmanship simply to defeat a rival. Resources employed by those who are defeated go to waste.

Competition results in the production of too many varieties. But too much variety is wasteful, because a small variety, but each large in quantity, can be more economically produced.

2. Human Welfare Ignored
The economic decisions made by individual entrepreneurs and producers under capitalism are based on their self-interest and not from the point of view of good of the society. However, necessary and useful the commodity may be, the producers will produced it if price does not exceed the cost, because it is only the profit motive which drives them. Social welfare is ignored altogether.

3. Economic Instability and Unemployment
Production is unplanned and is being augmented by ever increasing accumulation of capital, while the bulk of the consumers are being impoverished more and more. The result is economic instability. The workers have to live under a perpetual dread of losing their job. They have no sense of security.

4. Property Rights take Precedence Over Human Rights
Capitalism lays under emphasis on property rights as against human rights. Money, not man, rules the world and debases humanity.

5. Class-Conflict
Capitalism divides the society into two hostile camps of capital and labour, the “haves” and “have nots”. The labour wants higher wages and short working hours, which is against the interests of capitalists. Strikes and lockouts are inevitable.

6. Economic Inequalities
A feature of capitalistic countries is the glaring inequalities of wealth and income. A few are very rich indulging in all sorts of luxuries, whereas the masses are not able to get even two square meals a day. The gulf between the rich and poor is ever widening.

7. Mis-Allocation of Resources
Capitalism is also criticized on the ground that the productive resources are utilized for the production of luxuries for the rich without producing sufficient quantity of goods for mass consummating.

The market prices are not a correct index of the wishes and needs of the general public because the rich people are able to influence the market prices by their higher income.

8. Emergence of Monopolies
I also happens under capitalism that perfect and free competition ceases to prevail and instead of big combinations of powerful producers and monopolies emerge against whom it becomes difficult for an ordinary entrepreneur to compete. The monopolists produce small quantity but charge high prices and thus exploit the consumers. There is lot of concentration of economic power in a few hands.

9. Malpractices
In recent years, the image of capitalism has been tarnished by malpractices indulged in by high industrialists and businessmen. Such practices include payment of handsome salaries to influential directors, the large-scale evasion of fiscal laws, luxurious living at nation’s cost and persistent generation of black money.

10. Lack of Coordination
The in-coordinated nature of such an economic order sometimes becomes a disadvantage. Production is conducted as a result of the decisions of numerous isolated entrepreneurs and consumers, which is liable to create confusion in the system.

Qualities of Good Businessperson

A well-managed business is generally a reflection of a person or persons who have inherent or acquired qualities of leadership and direction. So a businessman to succeed must be a well-balanced and full-fledged man of talent. He must have a consistent mind for clearness, steadiness and firmness in his dealings with others. Some of important and basic qualities of businessman are following:

1. Accuracy

The businessman is that who knows what he is talking about, and what he mean, because he deals with a number of simple wants. Accurate actions depends upon accurate thinking. The goods businessman must be able to grasp his problems by treating them quantitatively.

2. Time Sense

Besides quantity and the nature of his product, the businessman must appreciate time. He must always thinking in terms of time. Actions cannot be taken in complete isolation from each other. There is also a chain of actions, which must fit in with the rapidly changing desires of the ultimate consumer. This makes it vital to be able to visualize the various actions in their places in time. There are no hunches in business, but all actions depend upon figures and facts.

The businessman who has given adequate attention of quality and time will always be ready to make the most of each opportunity as it arises, and to look ahead as far as he needs.

3. Alertness

A businessman keen on success must keep in with the world, and not keep himself to himself. He should move about and see what is going on for he has to gauge new wants and new inventions for creating fresh wants. In this sense he is to be merchant. For selling goods, which have been produced requires character and knowledge. Even to decide what sort of articles to try and produce with his machinery. The producer must be something of a merchant. He must be wide-awake and meet the existing demands and be in a position to create new ones.

4. Honesty

In order to adequately satisfy consumer demands, the businessman must be honest. Misfit sales may be forced for a time by high pressure salesmanship or misleading publicity, but they will not maintain themselves; for each sale installs in the possession of the buyer an article which begins at once to educate him as to error he made in acquiring it, and there is little likelihood of a second order. But if the seller uses all his ability to provide precisely what is wanted, he makes goodwill for himself. This honesty and optimism which goes with it are attributes of the businessman at his best.

5. Ability to Co-Operate

Another notable quality of the businessman is ability to co-operate with a large number of other. He must be able to compromise, adjust, adapt and be willing to admit that his judgment may on occasions be wrong. Besides he must be temperamentally fitted to exercise a divided authority. He shall be a goods businessman, if he can place himself in the shoes of other people inside his own business so as to see into the minds of customers who are outside it.

6. Dependability

Having once brought an organization into existence the businessman should use every effort to hold it constant and dependable, so that those who work under it know what to expect, as it remains unfluctuating from day to day. At all times everybody knows what can and what cannot be done. What is expected of him and what somebody else will do and can adapt himself accordingly. A dependable businessman has satisfied co-workers who are inevitably loyal to him and the unit directed by him.

7. Energy

A bountiful endowment of physical and nervous energy is another requisite without which other qualities are hardly of any value. As in any other activity so in business, infinite capacity to taking pains is essential. In addition to possessing an abundance of energy, he should possess forcefulness enough to put across his ideas and suggestions, which he believes to be right.

8. Character

All talents are greatly enhanced in value when to them is added moral character, because this gives the promise of energy, loyalty and steady growth in ability and economy in supervision. Such a person, in the words of Professor Hocking, will “through his eye, through his voice, through his gestures, through the substance of what to say, through absorption in his work and belief in his mission infuse his own, state of mind into his men.” He will avoid any sort of double-dealing, either with his associates or with the rank and file. All false dealing is futile; and it is absolutely destructive of loyalty.

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Branches Of Accounting

Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not least because accounting professionals tend to organize themselves around these various specialties.

Financial AccountingFinancial accounting is the periodic reporting of a company's financial position and the results of operations to external parties through financial statements, which ordinarily include the balance sheet (statement of financial condition), income statement (the profit and loss statement, or P&L), and statement of cash flows. A statement of changes in owners' equity is also often prepared. Financial statements are relied upon by suppliers of capital - e.g., shareholders, bondholders and banks - as well as customers, suppliers, government agencies and policymakers. (To learn more on this read, What You Need To Know About Financial Statements.)

There's little use in issuing financial statements if each company makes up its own rules about what and how to report. When preparing statements, American companies use U.S.Generally Accepted Accounting Principles, or U.S. GAAP. The primary source of GAAP is the rules published by the FASB and its predecessors; but GAAP also derives from the work done by the SEC and the AICPA, as well standard industry practices. (For more on this see,What is the difference between the IAS and GAAP?)

Management AccountingWhere financial accounting focuses on external users, management accounting emphasizes the preparation and analysis of accounting information within the organization. According to the Institute of Management Accountants, it includes "…designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls, and analyzing, synthesizing and aggregating information…to help drive economic value."

A primary concern of management accounting is the allocation of costs; indeed, much of what now is considered management accounting used to be called cost accounting. Although a seemingly mundane pursuit, how to measure cost is critical, difficult and controversial. In recent years, management accountants have developed new approaches like activity-based costing (ABC) and target costing, but they continue to debate how best to provide and use cost information for management decision-making.

AuditingAuditing is the examination and verification of company accounts and the firm's system of internal control. There is both external and internal auditing. External auditors are independent firms that inspect the accounts of an entity and render an opinion on whether its statements conform to GAAP and present fairly the financial position of the company and the results of operations. In the U.S., four huge firms known as the Big Four - PricewaterhouseCoopers, Deloitte Touche Tomatsu, Ernst & Young, and KPMG - dominate the auditing of large corporations and institutions. The group was traditionally known as the Big Eight, contracted to a Big Five through mergers and was reduced to its present number in 2002 with the meltdown of Arthur Andersen in the wake of the Enron scandals. (For further information see, An Inside Look At Internal Auditors.)

The external auditor's primary obligation is to users of financial statements outside the organization. The internal auditor's primary responsibility is to company management. According to the Institute of Internal Auditors (IIA), the internal auditor evaluates the risks the organization faces with respect to governance, operations and information systems. Its mandate is to ensure (a) effective and efficient operations; (b) the reliability and integrity of financial and operational information; (c) safeguarding of assets; and (d) compliance with laws, regulations and contracts.

Tax AccountingFinancial accounting is determined by rules that seek to best portray the financial position and results of an entity. Tax accounting, in contrast, is based on laws enacted through a highly political legislative process. In the U.S., tax accounting involves the application ofInternal Revenue Service rules at the Federal level and state and city law for the payment of taxes at the local level. Tax accountants help entities minimize their tax payments. Within the corporation, they will also assist financial accountants with determining the accounting for income taxes for financial reporting purposes.

Fund AccountingFund accountingis used for nonprofit entities, including governments and not-for-profit corporations. Rather than seek to make a profit, governments and nonprofits deploy resources to achieve objectives. It is standard practice to distinguish between a general fund and special purpose funds. The general fund is used for day-to-day operations, like paying employees or buying supplies. Special funds are established for specific activities, like building a new wing of a hospital. 

Segregating resources this way helps the nonprofit maintain control of its resources and measure its success in achieving its various missions.

The accounting rules for federal agencies are determined by the Federal Accounting Standards Advisory Board, while at the state and local level the Governmental Accounting Standards Board (GASB) has authority.

Forensic AccountingFinally, forensic accounting is the use of accounting in legal matters, including litigation support, investigation and dispute resolution. There are many kinds of forensic accounting engagements: bankruptcy, matrimonial divorce, falsifications and manipulations of accounts or inventories, and so forth. Forensic accountants give investigate and analyze financial evidence, give expert testimony in court and quantify damages. 

Compare & Contrast Of Accounting

A. Accounting and Economics:

 It may be said without doubt that Accounting, as it stands during the present days, is closely related with modern micro and macro economic concepts. Economics points out to the prominent economic problems of personal and social life, and their possible or probable solutions. Economics deals with the problems pertaining to want and shows the ways of possible or probable solutions of these problems from the point of view of an individual and also from the point of view of the Society as a whole. Further, the subject of economic also points out the paths of procurement of Finance and frames various financial rules for the solution of diverse financial problems. Economics thus, mainly deals with finance. Accounting also is better known as Financial Accounting. Transactions here are always financial transactions. Accounting shows us the way of how the systematic and proper recording of such transactions can be made of how the systematic and proper recording of such transactions can be made into the Books of Accounts. This subject also lets us know the process of preparation of Financial Final Accounts and some Financial Statements like Balance Sheets etc. So we see that both are interrelated through the core-matter of finance. The nature of accounting transactions cannot be clearly understood and analyzed without the knowledge of economics. Again, Effective Cost Control, creation of Reserves, Provisions and Sinking Funds and preparation of Budgets and Budgetary Control also require a pretty good knowledge of contemporary economics. On the other hand, if an economics is well-conversant with the accounting customs and conventions, principles and postulates, usages and doctrines, then he can easily understand the nature and movements of the business world. Specially, for the accurate analysis of exchange rates, balance of payment position, public distribution system, tax structure, Revenue System etc., it is better for the economist to have at least some knowledge of accounting. For the above reasons present-day accounting is called “Economic Accounting.” So, if we are to learn the subject of accounting well, we are to know the Economics of Accounting.
    

B.Accounting and Engineering:

Modern Accounting is closely related to Engineering. In any Engineering firm, if one is to calculate correctly the Cost of Production, percentage of profit or Sale Price, one ought to know Accounting and Costing. Cost minimization, Cost control and cost calculation of engineering products cannot be made unless we know the principles of Costing and Accounting. Again, an accountant of an engineering concern should also have some knowledge of engineering and should know something about machines or machineries if he is to perform his work of accounting well. Moreover, in all the factories of business concerns there are always some machineries and if the accountant is to calculate annual depreciation etc. of those machines, he should have some knowledge about eh nature and activities of those machines. So, today, it cannot be denied that for efficient management of machines, for proper upkeep and maintenance of the machines, for future development and extensions of factories and for future replacement of appropriate machines, engineers are in need of accountants and the accountants are in need of the engineers. Therefore, it can be said that Accounting and Engineering are totally dependent on each other. 

C. Accounting and Law:

In the modern world, all the societies are governed by various rules, regulations and laws imposed on all levels by the Sovereign Governments. Thus, the business units everywhere, whether big or small, are strictly tied up by different rules and regulations. Statutory concerns or Limited Companies are the glaring examples which are absolutely controlled by Acts. So, in almost all the countries, there are various industrial Acts, Industrial Disputes Acts, Companies Acts, Partnership Acts, etc. If the accountant does not know anything about these acts, it will not be possible for him to prepare the accounts properly and also to draw out the final accounts for submission to proper legal authorities. Further, the preparation of sales-Tax Returns and Income-Tax Returns will also become difficult for him if he is ignorant about these laws. He should also know the Financial Rules and Orders issued time to time by the Government so that he can assist the management in a better way. The accountant should also possess sufficient knowledge about social and criminal laws in order to perform the audit work efficiently. He should study the Case-Laws as well. So, it can be said that without the proper study of Law, knowledge about accounting cannot be complete. On the other hand, a successful Lawyer also should have at least some knowledge of accounting as in modern days, a considerable portions of the disputes is concerned with discrepancies of accounts and defalcations of money. So, now-a-days, it becomes impossible to separate law from accounting. Accounting and law are therefore considered as two branches of the same tree.

D. Accounting and Statistics:

As a matter of fact, it is very difficult to look upon Accounting and Statistics as two different subjects. Both are so similar as they appear to be the same. The task of a statistician is to collect data from different sources, to analyses the collected information and data in a very systematic manner and to draw a conclusion from the analysis. The accountant also collects various information and data from different accounts and statements. He also makes a systematic analysis of those data and presents the results of his analysis to the management of the business. Thus, he prepares Line Charts, Bar Charts, Pie chart etc. which the statistician also does. the accountant helps the management take important decisions with these statistical Charts. So, we see that a statistician sometimes collects accounting data and an accountant sometimes uses statistical methods. The two subjects are, therefore, compensatory to each other. They are therefore, very similar to each other. The only difference is that the accountant uses the knowledge of statistics in analyzing only the financial transactions but the domain of work of a statistical is not confine to accounting data only, his world of work is very wide, leaving almost nothing on the earth and space. The work of a statistician is all pervasive. So, we may conclude that Accounting and Statistics are very closely related. 

E. Accounting and Mathematics:

 If we think very deeply over the matter, it appears that accounting is only a branch of Mathematics. That is why Luca Pacioli appended his double entry system of book keeping with treatise on mathematics. It is only because of a close similarity between accountancy and mathematics in his mind. Actually in accountancy also he used all the numerical, the ratios, the percentages, etc. as used by the mathematicians. So in almost all cases of accounting mathematical approach is essential. An accountant will prove useless if he does not know mathematics. One cannot perform the work the work of accounting like recording the transactions, posting into the ledger, casting of the ledger accounts, balancing of the ledger accounts etc. If he has no knowledge of Mathematics. On the other hand, mathematicians also have enriched their subject by drawing many examples and illustrations from accounting. That is why, now-a-days, we see a new addition to the subject of Mathematics in the form of commercial Mathematics. So today, there is practically no difference between Accountancy and Mathematics. They are, therefore, more or less similar.
    

F. Accounting and Physics:

 Physics is treated as a pure science or general science or natural science. The main object of this subject is to analyze and explain the comparison of matters within and outside the world, their behavioral pattern, their increment and decrement and also their properties. On the other hand, accounting is a social science or behavioral science. The subject is concerned with financial activities and transactions of social human beings. Therefore, accounting cannot be treated as a science as physics is. The Accountant measures expenses, incomes, values, etc.and the physicist evaluates the properties of matter. The accountant measures the financial transactions and records them into the books of accounts and physicist measure and records the changes in the properties of the whole world. So there is a great difference between these two subjects. There is practically very similarity or no similarity at all between the two. Accounting is financial science and physics is a physical science. 

Compare & Contrast Of Accounting

A. Accounting and Economics:

 It may be said without doubt that Accounting, as it stands during the present days, is closely related with modern micro and macro economic concepts. Economics points out to the prominent economic problems of personal and social life, and their possible or probable solutions. Economics deals with the problems pertaining to want and shows the ways of possible or probable solutions of these problems from the point of view of an individual and also from the point of view of the Society as a whole. Further, the subject of economic also points out the paths of procurement of Finance and frames various financial rules for the solution of diverse financial problems. Economics thus, mainly deals with finance. Accounting also is better known as Financial Accounting. Transactions here are always financial transactions. Accounting shows us the way of how the systematic and proper recording of such transactions can be made of how the systematic and proper recording of such transactions can be made into the Books of Accounts. This subject also lets us know the process of preparation of Financial Final Accounts and some Financial Statements like Balance Sheets etc. So we see that both are interrelated through the core-matter of finance. The nature of accounting transactions cannot be clearly understood and analyzed without the knowledge of economics. Again, Effective Cost Control, creation of Reserves, Provisions and Sinking Funds and preparation of Budgets and Budgetary Control also require a pretty good knowledge of contemporary economics. On the other hand, if an economics is well-conversant with the accounting customs and conventions, principles and postulates, usages and doctrines, then he can easily understand the nature and movements of the business world. Specially, for the accurate analysis of exchange rates, balance of payment position, public distribution system, tax structure, Revenue System etc., it is better for the economist to have at least some knowledge of accounting. For the above reasons present-day accounting is called “Economic Accounting.” So, if we are to learn the subject of accounting well, we are to know the Economics of Accounting.
    

B.Accounting and Engineering:

Modern Accounting is closely related to Engineering. In any Engineering firm, if one is to calculate correctly the Cost of Production, percentage of profit or Sale Price, one ought to know Accounting and Costing. Cost minimization, Cost control and cost calculation of engineering products cannot be made unless we know the principles of Costing and Accounting. Again, an accountant of an engineering concern should also have some knowledge of engineering and should know something about machines or machineries if he is to perform his work of accounting well. Moreover, in all the factories of business concerns there are always some machineries and if the accountant is to calculate annual depreciation etc. of those machines, he should have some knowledge about eh nature and activities of those machines. So, today, it cannot be denied that for efficient management of machines, for proper upkeep and maintenance of the machines, for future development and extensions of factories and for future replacement of appropriate machines, engineers are in need of accountants and the accountants are in need of the engineers. Therefore, it can be said that Accounting and Engineering are totally dependent on each other. 

C. Accounting and Law:

In the modern world, all the societies are governed by various rules, regulations and laws imposed on all levels by the Sovereign Governments. Thus, the business units everywhere, whether big or small, are strictly tied up by different rules and regulations. Statutory concerns or Limited Companies are the glaring examples which are absolutely controlled by Acts. So, in almost all the countries, there are various industrial Acts, Industrial Disputes Acts, Companies Acts, Partnership Acts, etc. If the accountant does not know anything about these acts, it will not be possible for him to prepare the accounts properly and also to draw out the final accounts for submission to proper legal authorities. Further, the preparation of sales-Tax Returns and Income-Tax Returns will also become difficult for him if he is ignorant about these laws. He should also know the Financial Rules and Orders issued time to time by the Government so that he can assist the management in a better way. The accountant should also possess sufficient knowledge about social and criminal laws in order to perform the audit work efficiently. He should study the Case-Laws as well. So, it can be said that without the proper study of Law, knowledge about accounting cannot be complete. On the other hand, a successful Lawyer also should have at least some knowledge of accounting as in modern days, a considerable portions of the disputes is concerned with discrepancies of accounts and defalcations of money. So, now-a-days, it becomes impossible to separate law from accounting. Accounting and law are therefore considered as two branches of the same tree.

D. Accounting and Statistics:

As a matter of fact, it is very difficult to look upon Accounting and Statistics as two different subjects. Both are so similar as they appear to be the same. The task of a statistician is to collect data from different sources, to analyses the collected information and data in a very systematic manner and to draw a conclusion from the analysis. The accountant also collects various information and data from different accounts and statements. He also makes a systematic analysis of those data and presents the results of his analysis to the management of the business. Thus, he prepares Line Charts, Bar Charts, Pie chart etc. which the statistician also does. the accountant helps the management take important decisions with these statistical Charts. So, we see that a statistician sometimes collects accounting data and an accountant sometimes uses statistical methods. The two subjects are, therefore, compensatory to each other. They are therefore, very similar to each other. The only difference is that the accountant uses the knowledge of statistics in analyzing only the financial transactions but the domain of work of a statistical is not confine to accounting data only, his world of work is very wide, leaving almost nothing on the earth and space. The work of a statistician is all pervasive. So, we may conclude that Accounting and Statistics are very closely related. 

E. Accounting and Mathematics:

 If we think very deeply over the matter, it appears that accounting is only a branch of Mathematics. That is why Luca Pacioli appended his double entry system of book keeping with treatise on mathematics. It is only because of a close similarity between accountancy and mathematics in his mind. Actually in accountancy also he used all the numerical, the ratios, the percentages, etc. as used by the mathematicians. So in almost all cases of accounting mathematical approach is essential. An accountant will prove useless if he does not know mathematics. One cannot perform the work the work of accounting like recording the transactions, posting into the ledger, casting of the ledger accounts, balancing of the ledger accounts etc. If he has no knowledge of Mathematics. On the other hand, mathematicians also have enriched their subject by drawing many examples and illustrations from accounting. That is why, now-a-days, we see a new addition to the subject of Mathematics in the form of commercial Mathematics. So today, there is practically no difference between Accountancy and Mathematics. They are, therefore, more or less similar.
    

F. Accounting and Physics:

 Physics is treated as a pure science or general science or natural science. The main object of this subject is to analyze and explain the comparison of matters within and outside the world, their behavioral pattern, their increment and decrement and also their properties. On the other hand, accounting is a social science or behavioral science. The subject is concerned with financial activities and transactions of social human beings. Therefore, accounting cannot be treated as a science as physics is. The Accountant measures expenses, incomes, values, etc.and the physicist evaluates the properties of matter. The accountant measures the financial transactions and records them into the books of accounts and physicist measure and records the changes in the properties of the whole world. So there is a great difference between these two subjects. There is practically very similarity or no similarity at all between the two. Accounting is financial science and physics is a physical science. 

Accounting Cycle

Accounting Cycle:

A cycle means the happening of events in a systematic manner and recurring of the same at regular intervals. The accounting activities are undertaken in such a sequence that they form a cycle. That is why the term “accounting cycle” refers to the activities relating to the different stages involved in accounting process .As these steps are undertaken repeatedly is a sequential manner in each accounting period, as a whole they are identified and termed as a cycle.

The steps or phases involved in an accounting cycle are: (i) recording of financial transactions, (ii) classification and summarization of the recorded transactions and (iii) preparation of Trial Balance and Final Accounts. So each accounting cycle starts from recording of transactions in Journal and ends in preparation of financial statements.

The above stages of an accounting cycle are discussed hereunder:
(i) Recording: As soon as the financial transactions take place they are recorded in journal or primary books of accounts. Accounting process starts with the task of recording.
(ii) Classifying and summarizing: After recording the recorded transactions are classified into personal, real and nominal accounts and accordingly they are posted in different ledger accounts. The balancing of ledger accounts helps providing summarized information of classified transactions.
(iii) Preparation of Trial Balance and Final Accounts: At the end of a particular time span Trial Balance is prepared with the ledger balances to check the arithmetical accuracy of the first two accounting steps. Similarly at the end of a particular accounting period, to find out the end result of the transactions recorded in that period, a Profit and Loss Account is prepared. Along with the Profit and Loss Account a Balance sheet is prepared on the closing day of the accounting period to exhibit the claims owned and debts owed by the concern.

The above steps are followed in the same order in each accounting period. The concept of accounting cycle is further explained in the following diagram.

Functions OF Accounting

Functions of Accounting:

Modern Accounting operates within a broad socio-economic environment, and so, the knowledge required of the accountant cannot be sharply compartmentalized. It is therefore, difficult to discuss one area without relating to other areas of knowledge. We place a great emphasis on the conceptual knowledge. The accountant should not only know but he should understand.
From the above it is clear that no define accounting as such, is rather difficult. Many accountants have defined Accounting in very many languages.
However we can consider the following definition:
1.H.Chakravorty: “Accountancy is the science of recording, classifying and summarizing transactions so that relation with outsiders is exactly determined and result of operation during a particular period can be calculated, and the financial position as the end of the period may be shown.
2.A.I.C.P.A.: "Accountancy may be defined as the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are in part, at least of financial character, and interpreting the results thereof".
3.Taylor and Shearing: "Accounting may be defined as the art and science of recording business transactions in a methodological manner so as to show: (a) the true state of affairs of a business of a particular period of time and, (b) the surplus or deficiency which has accrued during a specific period."
It appears from the above analysis,that Accounting is basically concerned with recording of the business transactions, designing the types of records to be maintained, preparing the reports on the basis of those recorded data and transactions and interpreting those reports.Finally, Accounting is concerned with Communication of the results of the recorded transactions in the form of Final Accounts consisting of the Profit and Loss Account with different sections and the Balance Sheet with a number of reports and statements affixed at the end.Thus, the following are the main functions of Accounting:
1.Record Keeping: Accounting is to maintain systematic and chronological record of financial transactions and to post them subsequently to the various Ledger Accounts and finally to prepare the Final Accounts to find out the profit or loss of the business at the end of the Accounting Period.
2.Protecting of Properties: Accounting is to calculate the correct amount of Depreciation on Assets by choosing the appropriate Method applicable to any particular assets. any unauthorized dissipation of any asset will bring the business to the threshold of insolvency.Accounting is to design a desirable system to protect the properties and assets of the business from unauthorized and unwarranted use.
3.Communication of Results: Accounting is always to communicate the results of the recorded and transactions to the different parties who are interested in the particular business, i.e., properties, investors, creditors, employees, Govt.official and researchers etc.
4.Meeting Legal Requirements: Accounting is to devise and develop such a system of keeping record and reporting the results as will always meet and legal requirements to enable the proprietor or the authority to file various statements like Income-Tax Returns, Sales-Tax Returns etc.
  After careful consideration of the above Analysis, it can be stated that Accounting Functions can be sharply divided into two distinct departments:
A.Historical or Stewardship Function:
  This part relates to the past transactions of the business firm, Accounting records, classifies, reports, analyses and interprets the transactions already effected.Accounting also calculates the profit or loss made during the year and prepares other financial statements and the statement of Assets and Liabilities or the Balance Sheet and reports and results to the proprietors, managers and other interested parties. 

B.Managerial Function: 
  Accounting is to render such service to the management as to aid different levels of the managerial staff to carry out the operations of the business efficiently.Accounting is to present "information in such a way as to assist management in the creation of policy and in the day to day operation of an undertaking".-M.E.Murphy, Managerial Accounting.
  Accounting is an advisory service function and is concerned with furnishing such information to the management as will facilitate efficient planning, operational control and coordination of future activities of the enterprise. Thus, Accounting is to "assist management in establishing a plan for reasonable economic objectives and in making of rational decisions"-Haynes and Massic, Management Analysis
  
So we see that Accounting helps in Budgetary Control, Cost Control, Material Control and Operational Control and also in minimizing wastage, losses and errors and frauds.