If we study the history of Accounting it is clear, the use of Accounting prevailed from the primitive stage of human civilization in various processes. The scope of accounting process began to increase side by side with the gradual development of civilization.
Industrial revolution brought momentum in worldwide economic activities and since then people started to feel deeply the necessity of maintaining accounts of their business in scientific methods.
As a result, application of accounting extends to all kinds of economic activities including large or small industries. As die wide application of Accounting began to increase, accounts in various countries were prepared following various accounting principles.
Some specific principles are followed-to bring uniformity in audits and accounts of various countries of the world. Gradually the acceptability of accounting began to increase in various fields.
Following specific principles the accounting had made its position firm and its acceptability in all stages has been established.
The acceptability of recorded information is very important to the users as worldwide accounting process is prepared following specific concepts, rules and regulations.
Accounting is a profession like other professions as engineering and medical science. At present many consider accounting as very honorable profession.
Its acceptability and application have widely increased due to its image. In the modem world keeping accounts is mandatory for every private, public, government, semi-government, autonomous bodies and other financial organizations.
The uses, acceptability, application, advantages and social position of Accounting have increased to the credit of the image of Accounting. The factors playing important role in respect of accounting image are stated below:
Scientific System of Accounting
Throughout the whole world in all institutions including business organizations accounts are maintained under Double Entry System. Under this system every financial transaction is recorded in two accounts – debiting one and crediting the other for equal amounts.
As in mathematics 2+2 = 4, similarly in this system total amount of debited balance is equal to total balance of credit. Accounting equation A = L + OE is proved under this system. For this reason this system is called a scientific system which has got worldwide acceptance.
Permanent Record of Transaction
The necessity of Accounting also arises when one needs to know if the main objective of a business is achieved through keeping proper accounts of financial transactions.
It is essential to record business transactions permanently in a systematic way. Accounting does this work under specific rules and principles.
Without recording of transactions of business systematically it not possible to know any sort of business information from scattered record of transactions.
In future any reference needed can easily be obtained from permanent record, of transactions. This system of recording transactions permanently has increased the image of accounting greatly.
In the past accounts were kept in various countries following different principles and conventions. But in the modem world in almost all the countries same conventions, principles and rules are followed in keeping Accounts.
The Financial Accounting Standard Board (FASB) of USA introduced various concepts, principles and rules known as Generally Accepted Accounting Principles (GAP).
Accounting Standard Board (ASB) of the U.K. introduced various concepts, principles and rules known as statement of Standard Accounting Practice (SSAP).
In this age of globalization with the utmost endeavor of accountants of U.S.A., U.K., Canada, Australia, Finland, Germany, Japan, Mexico, the Netherlands, Ireland, International Accounting Standard Committee (IASC) was formed for bringing worldwide uniformity in application of accounting concepts, principles and rules.
At present in almost all the countries of the world all accounting activities are done following Generally Accepted Accounting Principles. Worldwide acceptance of the accounting concepts, principles and rules has increased its acceptability and reliability and also the image of accounting appreciably.
International Accounting Standard in Accounting System
Since World War: II the scope of international business has been growing fast. As multinational organizations are formed at home and abroad the necessity of formulation of international rules and principles arises.
The financial statements prepared following the rules of a particular country may not be equally meaningful to the interested parties of other countries.
For this purpose in 1973 “International Accounting Standard Committee” was formed with the members of sixteen organizations of nine countries with its head office in London. Later on many professional organizations of various countries became members of this committee.
The main function of this committee is to prepare internally accepted principles and publish the same for preparing financial statements. For this purpose draft proposals are invited from various interested parties and those are published for getting opinions.
Considering these principles that are approved and published, this committee has formulated principles regarding matters like valuation of stocks, determination of depreciation, keeping accounts showing influence of inflation, keeping accounts of tax or income, inclusion of retirement benefit of the employees in financial statements etc.
Many international standards have been, prepared so far. Many of them are followed in many countries of the world including Bangladesh.
As a result of this system the image of Accounting has increased largely. Thereby acceptability and reliability of these financial statements have also been increased.
Accounting in Determining Results and Financial Position of a Business Concern
The main objective of business is to earn profit. The result and financial position of a business concern are determined through accounting system. Had there been no existence of accounting system the business could not have expanded so much.
Accounting as a Language of Business
Many famous writers of Accounting of the world have regarded Accounting as the language of business.
Man expresses his feelings through language in written and verbal form; similarly various information of the business organization is expressed and presented through various accounting statements.
In language, efforts are made to express a particular feeling using words one after another.
Similarly in accounting financial transactions are recorded in books of accounts-and there from preparing financial statements various financial information are communicated to persons concerned.
Accounting furnishes all information on the past events, current activities and future possibilities of a business.
Recording and analyzing past and present financial events, Accounting presents and communicates various information in the form of statements and reports to the interested parties like owners, employees, management, investors, buyers, seller etc.
From these accounts, statements and reports parties concerned can realize the success-failure, financial solvency -insolvency etc. Of course, having sound command over accounting language one can understand this information.
These financial statements are meaningless to them who do not have accounting knowledge, as newspaper is a bundle of papers to an illiterate person. So, accounting performs the purpose of language.
Accounting as a Profession
Accounting fulfills the requirements of features that are necessary in a discipline to be treated as a profession.
Besides, for assessment-and payment of tax reliable accounting statements are necessary. Audited accounting statements have got much more acceptability and reliability.
As Accounting has been recognized as a profession, its image has increased to a great extent.
Accounting in Decision-Making
Business concern needs to take various decisions. For making all these decisions, required economic data are available in accounting statements.
Reliable accounting data helps in taking correct decisions. So by providing necessary data to the management for taking decisions Accounting creates its image.
Accounting as Current Economic Reality
Accounting mirrors economic reality. The evaluation basis of income statements and balance sheet should be of such nature, which reflects the economic reality rather past cost. The main objective of Accounting is to ascertain true income and reflect the changes in assets.
Opinions differ regarding the selections of method to be used in determining economic value of assets and liabilities and quantity of income.
Information statements regarding general value level or current value level are prepared on the basis of various methods of inflationary Accounting. Its main purpose is to exhibit financial position of a business concern accurately.
Accounting as an Information System
Accounting is always considered as an information system. What kind of accounting information system will be adopted in maintaining accounting data depends upon the size and nature of the business concern.
Accounting information system may mechanically or operated the manually. But the accounting information system is the source of information and the media of communications. It helps to establish links among the customers.
Accounting as a Commodity
Ahmed Balkaoui has considered accounting as a commodity. Accounting has got wide demand and acceptability like all other commodities.
Accounting is not only needed for its utility but is also useful from the economic- cost- analysis point of view.
Accounting as a Historical Record or Documents
Accounting is considered as media of providing past information of transactions of a business concern.
Transactions are recorded permanently in different stages such as, journalizing, maintaining accounts in ledger, preparation of financial statements through accounting information system.
These accounts and financial statements are treated as historical documents.