NCERT Book Class 11 Accountancy Chapter 2 Theory Base of Accounting

Theory Base of Accounting 25

Theory Base of Accounting 2

A s discussed in the previous chapter, accounting
is concerned with the recording, classifying
and summarising of financial transactions and
events and interpreting the results thereof. It
aims at providing information about the financial
performance of a firm to its various users such as
owners, managers employees, investors, creditors,
suppliers of goods and services and tax authorities
and help them in taking important decisions. The
Learning Objectives investors, for example, may be interested in knowing
After studying this chapter,
the extent of profit or loss earned by the firm during
you will be able to: a given period and compare it with the performance
• identify the need for of other similar enterprises. The suppliers of credit,
theory base of acco- say a banker, may, in addition, be interested in
unting; liquidity position of the enterprise. All these people
• explain the nature of look forward to accounting for appropriate, useful
Generally Accepted and reliable information.
Accounting Principles For making the accounting information
(GAAP); meaningful to its internal and external users, it is
• state the meaning and important that such information is reliable as well
purpose of the basic as comparable. The comparability of information
accounting concepts;
is required both to make inter-firm comparisons,
• l i s t the accounting
i.e. to see how a firm has performed as compared
standards issued by
Institute of Chartered to the other firms, as well as to make inter-period
Accountants of India; comparison, i.e. how it has performed as compared
• describe the systems of to the previous years. This becomes possible
accounting; and only if the information provided by the financial
• describe the basis of statements is based on consistent accounting
accounting. policies, principles and practices. Such consistency
is required throughout the process of identifying the

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