accountind & its branches

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MEANING OF ACCOUNTING According to American Institute of Certified Public Accountants (AICPA) “Accounting is 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 a financial character, and interpreting the result thereof.” BRANCHES OF ACCOUNTING I. FINANCIAL ACCOUNTING: It covers the preparation and interpretation of financial statements and communication to users of accounts. It is historical in nature as it records transactions which had already been occurred. The final step of financial accounting is the preparation of Profit and Loss Account and the Balance Sheet. It helps in determination of the net result for an accounting period and the financial position as on a given date. II. MANAGEMENT ACCOUNTI NG: It is concerned with internal reporting to the mangers of a business unit. To discharge the functions of stewardship, planning, control and decision making, the management needs variety of information. The different ways of grouping information and preparing reports as desired by managers for discharging their functions are referred to as management accounting. A very important component of the management accounting is cost accounting which deals with cost ascertainment and cost control. VARIOUS TOOLS OF FINANCIAL STATEMENT ANALYSIS a. RATIO ANALYSIS: An analysis of financial statements based on ratios is known as ratio analysis. A ratio is a mathematical relationship between two or more items taken from the financial statements. Ratio analysis is the process of computing, determining, and presenting the relationship of items. It also includes comparison and interpreta tion of ratios and using them as basis for the future  projections . Ratio a nalysis i s helpful t o manag ement an d outsiders to diagnose the financial health of a business concern. It helps in measuring the profitability, solvency, and activity of a firm.  b. CASHFLOW ANALYSIS: Cashflow analysis depicts the inflows and outflows of cash. Cashflow statement is the device for such analysis. It highlights causes which bring changes in cash position between two balance sheet dates. c. FUNDS FLOW ANALYSIS: Funds flow statement signifies the sources and applicati ons of f unds. The term „fundsrefers to working capital. Funds flow analysis clearly shows internal and external sources of working capital and the way funds have been used. Funds flow analysis is helpful in judging credit worthiness, financial planning and budget preparatio n.

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