Accounting and Finance for Hospitality

Accounting and Finance for Hospitality

financial picture is known as accounting or, in its elementary stages, as book-keeping. In this unit you will study the meaning, scope and objectives of accounting and also the

accounting process. Accounting, as a record keeping process, developed slowly over the centuries in order to serve the changing social and economic needs of the society. In early days clay tablets were used in Babylon to record money lending and other commercial transactions. Similar types of records have also been discovered describing business activities in ancient Greece, Egypt and Rome. Even in India, the use of accounting could be traced to ancient times. In the book of ‗Arthashastra‘ written by Kautilya around 4 century B.C., there was a separate chapter on ―The business of keeping up accounts in the office of accountants‖. The earliest known textbook describing double-entry book-keeping was written

by Luca de Bargo Pacioli in 1494 at Venice. The next major step in accounting was

brought by the industrial revolution during the 18th & 19th centuries. Today computers

are being used to help management to perform accounting functions properly. A new

branch of mathematics known as operational research is being used to help management

in solving various problems.

1.2 Meaning and Scope of Accounting

1.2.1 Meaning of and Definitions of Accounting

Accounting has rightly been termed as the language of business. It is through

accounting that various monetary matters related with business are communicated. The

main objective of accounting is to ascertain the amount of profit or loss earned by the

enterprise during a certain period and to show a true and fair view of the financial

position of business on a particular date. Accounting today, is thus more of an

information system rather than a mere recording system.

Definitions of Accounting: It will be useful here to give in a chronological order, the

definitions given by some of the well-established accounting bodies, which show how the

concept of accounting has undergone a change over a period of time.

In 1941, the American Institute of certified Public Accountant (AICPA) defined

accounting as follows: ―Accounting is the art of recording, classifying and summarizing

in significant manner and in terms of money, transactions and events which are in part, at

least of financial character & interpreting the result thereof.‖

In 1966, the American Accounting Association (AAA) defined accounting as

follows – ―Accounting is the process of identifying, measuring and communicating

economic information to permit informed judgments and decisions by users of the

information‖. In 1970, the Accounting Principles Board (APB) of American Institute of

certified Public Accountants (AICPA) enumerated the functions of accounting as follows:

―The function of accounting is to provide quantitative information, primarily of

financial nature, about economic entities, that is needed to be useful in making economic decisions‖

Thus, accounting may be defined as the process of recording, classifying,

summarizing, analyzing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information

1.2.2 Characteristics of Accounting

1. Science and Art: Accounting is science because it has some definite objects to

be fulfilled. It is art because it prescribes the process through which the objects

can be achieved.

2. Business Transaction of Financial Nature: Recording of all transactions is not

accounting, only business transactions and that too of financial nature, from the subject matter of accountancy.

3. Identifying: Accounting records only those transactions and events which are of

a financial character, therefore, it is necessary to identify recordable economic

events. For e.g. (i) purchase of machinery for Rs.50,000 (ii) Paid to Sanjay

Rs.3000 etc. if an event cannot be quantified in terms of money, it is not

considered for recording in financial accounts.