Category: Commerce Notes PPT

The Traditional Approach distinguishes the accounts while the modern approach implements the accounting equation required for accounting. Under the traditional approach, the ledger accounts are then classified into – Personal and Impersonal accounts. The rules of debit and credit that are directed in this traditional approach are the golden rules.

The traditional Approach classifies accounts while the Modern approach uses the Accounting equation for accounting. All the ledger accounts are classified as ‘Personal’ and ‘Impersonal accounts’ under the Traditional approach.

Certain rules apply for Debit and Credit in the Traditional approach, such as 

1. Debit is what comes in whereas credit is what goes out. 

2. Debit refers to the expenses and the losses, and

3. Credit refers to the income and gains.

 

Traditional Approach of Financial Accounting

The financial accounts are to be classified into two types of approaches. First, according to the traditional approach also known as the British approach. The other is the Modern approach also known as the American approach. The Key factors under the Traditional approach are the personal and impersonal accounts which we will further illustrate in the prevailing sections.

Financial Accounts are Classified into:

1. The Traditional Approach to Financial accounting is also referred to as the British approach

2. The Modern approach, or also referred to as the American approach.

Traditional account, accounts are classified into

1. Personal Accounts, and

2. Impersonal Accounts.

Personal Accounts

These accounts are accounts that belong to human beings or natural persons and even artificial persons. Personal accounts are further classified into:

Natural persons, Artificial persons, Representative persons.

 

We will understand the mentioned in detail.

1. Natural Persons 

Natural persons are human beings. In this case, we include accounts belonging to humans, meaning respective accounts are owned by individual persons. So, Debtor’s A/c., then the Creditor’s A/c., Proprietor’s A/c., Proprietor’s Capital A/c., Proprietor’s Drawings A/c. all fall under this category.

2. Artificial Persons

These are the persons who are not human beings but legally can act and work like humans. As mentioned, artificial persons, possess a separate identity in the eyes of law. Thus, they can enter into any contractual agreements. With this, they qualify to be penalized too. HUF also known as the Hindu undivided families, partnership firms, the co-operative societies, associations of persons, companies, the municipal corporations, even the hospitals, baking sectors, government bodies, etc all are artificial persons under the eyes of the law.

3. Representative Persons 

As suggested by the name, these accounts merely represent the accounts of the persons. These persons may be natural and even artificial. The nominal accounts of expenses and incomes which are outstanding, pre-paid, accrued, or unearned, fall under this representative person’s category. Thus, Wages Outstanding A/c, Prepaid Rent A/c, Accrued Interest A/c, Unearned Commission A/c, etc. come into this category.

Impersonal Accounts

Accounts that are not included in the Personal Accounts, Impersonal Accounts fall under two categories.

1) Real accounts and 2) Nominal accounts.

1. Real Accounts

Real Accounts are related to all the assets and liabilities of a business and these accounts are not closed at the end of the accounting year. They continue to appear in the financial statement of a company, in the Balance Sheet and carried forward to the upcoming accounting year. 

These are permanent accounts and they fall into the following categories :

1. Tangible Real Account are those assets, properties, or possessions that can be touched, seen or measured. Some examples of this are the Building A/c, Furniture A/c, Cash A/c.

2. Intangible Real Account comprises all assets and possessions which one cannot touch, see or measure, and these have a monetary value. These can be bought and sold even. Certain examples are Goodwill, Patents, Copyrights, Trademark, etc.

2. Nominal Accounts 

Nominal Accounts are accounts that are related to the expenses, the losses, the incomes, and the gains, and these are temporary accounts. The balances of these are transferred to the Trading and Profit and Loss A/c at the end of the accounting year. These accounts don’t have a balance that needs to be carried forward to the next year. 

A capital market is a financial market in which investors buy and sell financial securities, such as stocks and bonds. These transactions take place through various exchanges. A stock market, for example, is an exchange where stock brokers and traders buy and sell stocks of public companies. A bond market is an exchange where traders buy and sell bonds issued by corporations, governments, or other entities.

The primary function of the capital market is to bring together investors who buy securities with those who sell them. The three main participants of the capital markets are savers (also known as investors), borrowers, and stockholders.

The term capital market includes the stock market, bond market, and related markets. The term is frequently used with reference to banks and banking in both a narrow and broad sense. In the United States, the term is sometimes used to include markets for saving and loans as well as bonds. The units invested may be of any country.

Characteristics of Capital Market 

As the capital market is the primary source where the finance is raised for financing the activities of any business, the following characteristics must be present in the capital market to make it effective.

The various characteristics of capital market are as follows:

Some of the important characteristics of a capital market are following:

Security is the basic requirement for any kind of investment to make a profit. Securities are the financial instruments that carry all the information about the underlying assets, liabilities, income, and expenses.

Brokers and dealers play an important role in the capital market. They act as middlemen, that is, they buy and sell securities for their customers. The brokers and dealers make their profit by collecting the brokerage fees, which is a small percentage of the overall transaction value.

Competition among the market players is a key factor in the capital market.    

An active and competitive market is very important as it ensures that the buyers and sellers get the best price for their investment. There must be a proper system of transfer of ownership of securities so that they can easily change hands.

What are the Different Instruments of the Capital Market? 

The types of capital market instruments are broadly classified into two types –

1. Equity Security

1. Equity Shares

These shares are the prime source of finance for a public limited or joint-stock company. When individuals or institutions purchase them, shareholders have the right to vote and also benefit from dividends when such an organization makes profits. Shareholders, in such cases, are regarded as the owners of a company since they hold its shares.

2. Preference Shares

These are the secondary sources of finance for a public limited company. As the name suggests, holders of such shares enjoy exclusive rights or preferential treatment by that company in specific aspects. They are likely to receive their dividend before equity shareholders. However, they do not typically have any voting rights. 

2. Debt Security

It is a fixed income instrument, primarily issued by sovereign and state governments, municipalities, and even companies to finance infrastructural development and other types of projects. It can be viewed as a loaning instrument, where a bond’s issuer is the borrower. 

1. Bonds

Bondholders are considered as creditors concerning such an entity and are entitled to periodic interest payment. Furthermore, bonds carry a fixed lock-in period. Therefore, issuers of bonds are mandated to repay the principal amount on the maturity date to bondholders. 

2. Debentures 

Unlike bonds, debentures are unsecured investment options. Consequently, they are not backed by any asset or collateral. Here, lending is entirely based on mutual trust, and, herein, investors act as potential creditors of an issuing institution or company.

All these four instruments are parts of the capital market. Since each is unique and has distinguishing features, they are useful in different ways for a company. Therefore, it is crucial to understand the different types of capital market instruments so that you can acknowledge their purposes.

What are the Functions of the Capital Market?

Irrespective of the capital market and its types, their functions are similar. These are listed below –

• Enhance trading of securities

• Provides a common platform to both investors and savers

• Accumulation of capital for companies that need them

• Stimulates economic growth

• It improves the process of allocation of capital

• Prepares for continuity of funds availability

• It reduces information and transaction charges significantly.

• Faster valuation of securities.

• Provides proper channeling of funds to be used productively.

Therefore, the capital market is an effective medium for mobilizing funds between investors and sellers. With the functions listed above, it is evident that the capital market is not only a platform for fund transfer but also has its long-term advantages. 

It is useful in boosting national incomes, thereby enhancing the overall economic growth of a nation as a whole. As a result, you will need to understand the concepts from the grassroots to get an in-depth idea of a capital market meaning and types, functions, and significance.

What are the Types of Capital Market?

The types of the capital market – primary and secondary are essential to understand for Commerce students. Additionally, there are other divisions of the capital market based on the traded security type – bond market and the stock market. 

Herein, we will focus on the former division of capital market types – primary and secondary markets.

Herein, the trading takes place for new securities. Companies go public for the first time in this market allows entities outside the locus of an organization to purchase their shares. This phenomenon is called Initial Public Offering or IPO.

Between the types of capital markets, it deals with securities that have already been traded in the primary market. New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange (NSE), etc. are secondary markets. 

To understand these clearly, students should grow an understanding of the types of capital in business as well. 

For more information on capital markets, look into our online learning programs. They consist of high-quality study materials that are drafted by our subject experts. Besides they are written in lucid language to facilitate a clear understanding of the same. So, avail of our study materials and also live online classes now and enhance your academic experience.

For any organization to function distinctively, there must be a plan which is to be devised before-hand. Planning is very important to a business. The top managers must plan their goals both short and long terms with their competent employees and their team of experts to analyze the pros and cons of the plan, the investment required in the plan, the return expected and so forth.

In this discussion, we will know about this managerial function of ‘Planning’ in detail. This is one of the important topics in the study of Business, hence the students must not exclude it.   

Types of Planning

In an organization, various, different kinds of planning are included which serves a variety of purposes. As Planning is the most important fundamental, it is not to be compromised with a single plan applied universally in the whole organization. With each department specific need, workforce constituents, the different plans are devised. Predominantly, for the goal of the business, planning is done by the top-level managers, while short-term plans are done by the team leaders too in different departments. 

Good Companies give priority to the planning process, as adequate management and competent leadership will follow only after effective planning is done. Companies are required to keep a track on the planning process, to be in sync with the predetermined process.

To Plan Better Companies, You Need to Take Care of The Following Things

1. Devise a Plan – Important goals needed to achieve, strength of the organization all are required to be forecasted before-hand. Devising a proven plan helps to visualize the goals with much before and thus take action in regard to that.

2. Define Success – Managers need to foresee where their business stands in the near future. They need to clearly define the milestones that they want to take step on and the same is required to be communicated to the employees.

3. Put in Action – After much planning, the final process that will actually will help in achieving the goals is to put the plan in action. With the required workforce, the company should start working in the attempt to achieve their set target.

Talking About the Types of Planning, we have

1. Operational Planning

2. Strategic Planning

3. Tactical Planning

4. Contingency Planning

Explain the Types of Planning

In the section discussed above, we have already mentioned the types of Planning. Here, we attempt to discuss in depth about the four types of Planning. 

1. Operational Planning 

Answering the question of “How things need to happen? What are the guidelines to accomplish the set mission?” describes an operational plan. This plan simply means the daily activities which are focused in achieving the goal. Operational Plans are generally the single used plans or the on going plan. 

They can also be planned for one-time events or for a specific need. These plans include specific rules and regulations and procedures to stand by it. They provide an adequate guideline for the step to step processing of the work. 

2. Strategic Planning  

The reason for planning is chalked out in the strategic plan. Strategic plans are generally long-term thinking processes executed by the top-level managers. It is a big picture to cast a vision and requires mission processing. 

It requires a high-level analysis of the entire business. Being the foundational basis of the organization, strategic planning dictates long term goals which normally tenures for two to ten years span. 

3. Tactical Planning 

Tactical Plan is the backbone of Strategic Plan. Generally speaking, they are focused, specific and short-term plans. They are the plans that initiate the actual work. Tactical plans form the outline of a strategic plan that eventually structures the organizational plan. Often the tenure of this plan is quite short and mostly lasts to one year. The strategic plans that get chunked into actionable plans are called Tactical Planning.

4. Contingency Planning 

Contingencies might occur in business. To tackle the contingencies, the contingency planning is drafted. Thyer ae also named as ‘Special Planning’ by the business experts. In a situation of change, contingency planning proves to be helpful. 

Though managers acknowledge the changes before-hand yet contingency plans help to tackle the unseen changes. With the complicated business world, the contingency plan becomes more of a use.

Types of Policies in Management

Different Policies are used in an organization, that is responsible for each purpose. Following are the types of policies that are being widely used in the business world. –

1. Organizational Policies – The policies decide the goal of an organization. They are the overall general policy that is administered in an organization.

2. Functional Policies – The policy is prepared for different functions, like production, marketing, finance and personnel. The functional policies are decided keeping in view of the organizational policies already structured.

3. Originated Policies – This is also known as the internal policy that prepares policies for subordinates. This policy is being drafted by their managers.

4. Specific Policies – These policies are formulated in regard to some specific issues. 

Before we start with the valuation of goodwill, let us briefly revise the concept of goodwill. 

Goodwill is primarily an intangible asset that is related to the purchase of one company by another. The concept covers such a portion of the purchase price, which is higher than the total net fair value of the assets that have been bought. 

The importance of goodwill may be understood by its importance for increasing the business value. It is also instrumental in acquiring more customers. In common parlance, the goodwill of a company is understood to be its proven track record.

There are a whole host of factors that influence the goodwill of a company. Such factors are more likely to include the capital requirement nature of business, market situation, the reputation of owners, and profit trends, among others.

An example of goodwill – When company X purchases company Y for greater than the fair value of company X’s debts and assets, the amount that remains is recorded as goodwill in the balance sheet of company X. 

Now that we have revised our knowledge of goodwill let us move on to the methods of valuation of goodwill.

Valuation of Goodwill

The valuation of goodwill essentially means that the calculation of these intangible assets is used to determine the remaining value of a company in the event it is purchased. The valuation of a business takes into account different parameters such as the reputation of its owners, efficiency in the management, the situation in the market, and special advantage if any.

The need for valuation of goodwill arises from a range of different scenarios

• In Partnership – If partners retire, expire, or are newly admitted, there is a need for goodwill valuation. It also becomes important in case of alterations in profit-sharing ratio or amalgamation.

• In Company – In the instance of amalgamation of a company or acquiring controlling interest, another would require goodwill valuation.

• In Sole Proprietorship – Purchase considerations of selling off business are some of the situations where the valuation of goodwill is needed.

Methods for Valuation of Goodwill 

A company adopts the valuation method consistent with the market practices of the trade and the position maintained by it. The different methods of valuation of goodwill are mentioned below. 

1. Average Profits Method 

The average profits method primarily takes the following two forms –

1. Simple Average 

Here, the goodwill is evaluated by the calculation of average profit against the number of years purchased. 

2. Weighted Average 

This method is usually used in the instances of alterations of profit while also focusing on the current year’s profit. It calculates the previous year’s profit for obtaining the valuation. 

2. Super Profits Method

The super profit method of valuation of goodwill covers the excess of the maintainable profits in the future as opposed to the normal profits. The formula is indicated below.  

(Super profit = Average / Actual profit – Normal profit 

Normal profit = (Capital employed X Normal rate of return) / 100)

The super-profits method can be undertaken by either of the two following methods.

1. Annuity Method of Goodwill

The annuity method in the valuation of goodwill uses the average super profit over a specific number of years. The current value of an annuity is found on the basis of a discounted amount of super profit at the established rate of interest.

2. Purchase Method by Number-of-Years 

Super profits in a definite number of purchase years are evaluated for establishing goodwill.

3. Capitalisation Method 

In the goodwill capitalization method, there are two ways in which the calculation can be done. 

1. Average Profits Method 

The calculation covers the deduction of its actual capital that has been employed from the average profits of the capitalized value. It is undertaken based on the normal rate of return.

(Capitalised average profits = Average profits X 100 / Normal rate of return 

Actual capital employed = Total assets (excluding goodwill) – Outside liabilities)

2. Super Profits Method of Valuation of Goodwill

In these methods, super profits are directly capitalized for the valuation of goodwill. 

Test your skill 

Question: Kumar & Sons, Pvt. Ltd. has an average profit of Rs. 60,000. The capital is Rs. 4,00,000 and the business’s normal rate of return has been found to be 10%. Calculate the goodwill value by the capitalization method of the goodwill of the super-profits method.   

If you want to know more about different valuation methods of goodwill, refer to the online articles that are available over ’s platform. Do not forget to install the app on your device.

DK Goel textbooks are well known among students in the Commerce field. DK Goel Accountancy solutions are great reference material for students in Classes 11 and 12. This is a useful study resource for students preparing for regular exams as well as their board exams since a detailed and comprehensive understanding is required to score good marks. Commerce students can access the material by simply downloading

DK Goel Accountancy Solutions PDFs online. These solutions are easy to understand and provide detailed solutions for every chapter. 

How to Score Good Marks in Class 11 and 12 Accountancy Exams?

Students encounter Accountancy for the first time in the 11th standard and it is important to develop a strong foundation in the subject from the beginning. To score good marks in the 11th and 12th standards, students need to have a strong understanding of accounting concepts like making balance sheets, understanding assets and liabilities. The DK Goel Solutions is sure to guide you in your quest for academic excellence.

While studying, it is important to follow your textbook in sequence. Start from the very first chapter as all the other chapters will build on it. If you have difficulty understanding the chapters at the beginning, the following chapters might confuse you. Accounting is a theory-based as well as a practical subject. You must not rote learn Accountancy instead spend time to understand what you’re learning. 

The best way to start is to make a habit of practising Accountancy. After studying a chapter, try to solve questions related to it. If you have a doubt, you can always refer to DK Goel solutions. Students can also solve previous year’s question papers. These are easily available online. Answering question papers will help students understand the topics from which questions are usually asked, question paper pattern, and marks allocation. Remember, there are no shortcuts, you need to practice and study smart. 

Why is it Important to Study Class 11 and 12 Accountancy?

Accountancy is a very important subject when studying Commerce. If you want to become a CA, CMA, or ICWA, it is important to have a strong understanding of Accountancy.  Class 11 Accountancy syllabus is designed to give the student a complete understanding of the subject and helps build a strong foundation in Accountancy which will help them in many professional courses. 

Some of the reasons why a student must learn the subject well is –

1. One of the most obvious reasons why a student must prepare well for Accountancy is so that they pass the exam with flying colours.
2. Having a good knowledge of Accountancy will also pave a student’s way towards a successful career. 
3. The Class 11 and 12 Accountancy curriculum is designed to build a comprehensive understanding of accounting concepts. Hence, studying the syllabus well will prepare students for future advanced courses they may undertake.
4. If you prepare effectively for Class 11 and 12 accountancy, you will be confident in your accounting ability and can grab well-paying and satisfying careers in this field.

Features of the DK Goel Accountancy Solutions

1. The  DK Goel Solutions are available free of cost and students simply need to download them to gain access.
2. The solutions are written in a very clear, straightforward and understandable manner. Even difficult questions are explained in a precise and easy-to-understand way.
3. These solutions are organized in a very hassle-free way for students. It includes detailed solutions to every question in each chapter.
4. The DK Goel Solutions are designed in accordance with the latest CBSE syllabus. Hence, some of these questions might even appear in examinations.
5. These solutions are useful for students, as they can use them while practising as well as when revising for examinations. Students can practice solving questions, and if they face any trouble, they can look through the solutions for detailed answers. 

DK Goel Solutions for Class 11 And 12 Accountancy Chapters Free PDF download 

Here is a brief overview of what is included in the 27 chapters of DK Goel Accountancy Solutions for Class 11.

Chapter 1: Meaning and Objectives of Accounting

This chapter has 23 questions on the conceptual aspects of Accounting. This is followed by 9 questions based on Higher-Order Thinking Skills. Finally, you have 18 value-based questions in the first chapter of DK Goel solutions.

Chapter 2: Basic Accounting Terms

This chapter again includes questions based on thinking skills and value assessment. Students learn about common accounting terms like revenue, asset, expenditure, profit, and so on.

Chapter 3: Accounting Principles

The 3rd chapter in the solution of DK Goel includes questions on accounting statements, equations, characteristics of accounting principles, etc.

Chapter 4: Process and Basis of Accounting

In this chapter, students can read easy answers to questions about the accounting process, the accrual basis of accounting, etc.

Chapter 5: Accounting Standards and International Financial Standards (IFRS)

Chapter 5 of DK Goel Accountancy contains details about the nature, advantages, and objectives of international accounting standards.

Chapter 6: Accounting Equations

This chapter provides easy solutions to numerical questions on accounting equations.

Chapter 7: Double Entry System

The 7th chapter in the DK Goel Accountancy Solutions for Class 11 contains solutions on accounting methods, account types, etc.

Chapter 8: Origin of Transactions: Source Documents of Accountancy

This chapter gives you answers on accountancy documents like source documents, vouchers, cheques, invoices, etc.

Chapter 9: Books of Original Entry – Journal

In Chapter 9 of DK Goel Accountancy Solutions, you have questions and answers on the process of recording financial transactions.

Chapter 10: Accounting for Goods and Services Tax (GST)

Solutions in this chapter are on the new tax regime, GST (including CGST, SGST, IGST).

Chapter 11: Books of Original Entry- Cash Book

Chapter 11 of the Accountancy DK Goel Solution contains numerical solutions on cash book posting of transactions.

Chapter 12: Books of Original Entry – Special Purpose Subsidiary Books

Chapter 12 includes numerical sums and solutions on subsidiary book posting of transactions.

Chapter 13: Ledger

This chapter also carries numerical solutions. These are based on journal and ledger posting of transactions.

Chapter 14: Trial Balance and Errors

Chapter 14 of DK Goel Accountancy Solutions teaches the meaning of trial balance, the error of commission, compensating error, errors of principle, and so on. It is followed by numerical sums on the trial balance.

Chapter 15: Bank Reconciliation Statement

This chapter includes sums and solutions on bank reconciliation statements of firms.

Chapter 16: Depreciation

The 16th chapter in DK Goel Accountancy Solutions teaches how to calculate depreciation after finding out the ledger postings of a transaction.

Chapter 17: Provisions and Reserves

In Accountancy Chapter 17, Class 11 students learn the meaning of provisions, reserves, capital reserves, revenue reserves, dividend equalization reserve, etc.

Chapter 18: Bills of Exchange

Chapter 18 of DK Goel Accountancy Solutions gives solutions to questions on due date calculation, discounting charges, etc.

Chapter 19: Rectification of Errors

Here, students learn about simple solutions on how to rectify journal entries.

Chapter 20: Capital and Revenue

This lesson provides easy-to-understand answers on revenue expenditure and capital expenditure. This is followed by practice sums on the same.

Chapter 21: Financial Statements

In this chapter of DK Goel Accountancy Solutions, students learn how to calculate the cost of goods sold, gross profit, closing stock, net sales, etc.

Chapter 22: Financial Statements – With Adjustments

Here you will find detailed solutions to sums based on adjusted financial statements of a company.

Chapter 23: Accounts from Incomplete Records

Chapter 23 includes numerical problems and their solutions based on accounts from incomplete records of any firm.

Chapter 24: Introduction to Computers

Chapter 24 of DK Goel solutions details the computer’s definition, its key components, hardware, software, computer system, and so on.

Chapter 25: Introduction to Accounting Information System

Here, the solutions are based on the purpose and mechanism of the accounting information system.

Chapter 26: Computerised Accounting System

Chapter 26 of DK Goel Accounting solutions discusses manual accounting, computerized accounting, and their differences.

Chapter 27: Accounting Software Package – Tally

The last chapter of DK Goel solutions teaches about tally software and its uses.

Chapters Included in the DK Goel Accountancy Solutions for Class 12

Here are some of the chapters included in Volume 1 of DK Goel Class 12 accountancy solutions:

Chapter 1: Accounting for Partnership Firms- Fundamentals

This chapter includes numerical solutions on profit-sharing and interest on net drawings.

Chapter 2: Changes in Profit Sharing Ratio Among the Existing Partners

Here, through the appropriate solutions, students learn how a change in the profit-sharing ratio impacts the profit of a partner.

Chapter 3: Admission of a Partner

Chapter 3 of DK Goel Accountancy solutions shows how the admission of a new partner can affect the profit-sharing ratio and the sacrificing ratio of existing partners.

Chapter 4: Retirement or Death of a Partner

This chapter deals with how the death, withdrawal, or retirement of a partner can impact the shares of other partners.

Chapter 5: Dissolution of a Partnership Firm

The last chapter details the consequences of firm dissolution on a partnership contract.

Chapter-Wise Brief of DK Goel Accountancy Solutions for Class 12 Volume 2:

Chapter 1: Financial Statements of Companies

Here, you learn how to calculate the reserves and surplus of a company’s funds.

Chapter 2: Financial Statements Analysis

In this chapter of DK Goel accountancy solutions, students learn objectives, importance, uses, etc. of financial analysis.

Chapter 3: Tools for Financial Analysis: Comparative Statements

Here, students will learn everything about comparative balance sheets.

Chapter 4: Common Size Statements

You learn about a common size balance sheet and how to solve sums on them.

Chapter 5: Accounting Ratios

Accounting ratios like current ratio, quick ratio, etc. are discussed here.

Chapter 6: Cash Flow Statement

You get to understand the different categories of activities concerning cash flow statements in the last chapter of Class 12 DK Goel Accountancy Solutions.

Accounting Standard is the grounded principle of doing accounts in common parlance by literally any concern, be it a corporate or even an individual. These are the set of common principles, accounting standards that should be followed and the simple procedures while doing the accounts which define the basis of the financial accounting policies and its practices.

The standards improve the clarity of financial reporting in all the countries, including our nation. In the States, the GAAP is being introduced which forms a set of accounting standards that are widely accepted for preparing the financial statements. In our discussion we will know about the standards, benefits and usages. 

Accounting Standards Benefits 

The ruling authority in the world of accounting is gained by these Accounting Standards. The standards make sure that the information which is provided to the potential investors is no-where misleading. Accounting Standards have benefit of their own which we will see in the following section:

1. Uniformity in Accounting is Ensured

Accounting Standards provide with the rules for the standard treatment of accounting and recording the accounting transactions. The standards even have a distinct format for the financial statements, this is the step in attaining the financial uniformity. 

2. Financial Statements Can be Relied on

The stakeholders in a company rely on the financial statements for their information. The stakeholders base their decisions on the data that is provided by these financial statements. Also, the potential investors make their investment decisions on these financial statements.

Hence, it is essential for these statements to present a true and fair picture of the financial situation of the company.

3. Frauds and Manipulations of Accounting are Prevented

Accounting Standards have laid down the accounting principles and the methodologies which are followed by all the entities. This ensures that the management of an entity cannot manipulate the financial data. These standards are to be mandatorily followed and not be treated as optional.

These standards make it less possible for the management to misrepresent any financial information. While, it even makes it harder for the companies to commit any frauds.

4. Assist the Auditors

the accounting standards have laid down all the accounting policies, rules, regulations, etc in a written format. The policies need to be followed. So, if an auditor checks the policies they need to be correctly followed and be assured that the financial statements are true and fair.

5. Comparability

Another major objective of accounting standards is that it should be comparable. All entities of the country are required to follow the same set of standards to make their financial accounts comparable to some extent, this will help the users of the financial statements to analyse and compare the financial performances of various companies before taking any financial decisions.

6. Determining Managerial Accountability

The accounting standards help to measure the performance of the management of an entity. This measurement can help the management’s ability to increase the profitability, maintain the solvency of the corporate firm. Also, help with other such important financial duties of the management.

The business management also must wisely choose their own accounting policies. There are constant changes in the accounting policies which leads to confusion for the user of these financial statements. Then, the principle of consistency and comparability are lost.

Formulation of Accounting Standards in India

In the year 1977, the government passed a statute according to which the Accounting Standard Board (ASB) was responsible for the formulation of the accounting standards in India. The ASB took a brief look at the functioning of the same and the procedure which is behind the formulation of the accounting standards in India.