Furthermore, with the growth of industries, trade and commerce, with
ever-increasing complexities of business management and with
ever-mounting competition in business fields, the necessity of proper
book-keeping and accountancy is felt by the business houses. The growth
of commerce and industry has brought about the use of more adequate
modern accounting records and an increasing interest in such records.
Some of the features of present-day business which create a need for
modern accounting methods are as follows:
1. Size: Business units have grown to tremendous proportions. Operations are too expensive to be comprehended by an individual without summarized reports. Information for management must be obtained from accounting reports since personal inspection of all operations is physically impossible and verbal reports are inadequate. Objectivity of management enables policies to be formulated without personal bias, but it cannot be maintained in a large business without comprehensive reports.
2. Complexity of business organization: Operations of an enterprise are becoming more complex under modern economic condition, necessitating more nearly complete control through accounting.
3. Separation of management from ownership: The joint stock form of business organization has tended to bring into existence managers, who are not owners, and owners, but share-holders control the management, and in order to do this effectively these owners must have records and reports which clearly indicate what the management has been doing.
4. Competition: In case of keen competition, profit margins tend to become narrower. Under such conditions the information to be obtained from accurate accounting records can be especially helpful to the business management in its endeavor to reduce cost and avoid selling at a price that is economically unsound. At a time when profit margins are narrow, haphazard guessing and wrong forecasting may be disastrous.
5. Variety of properties: Besides the increase in the size of the business unit, there has come to be a general diversity in the properties owned by a business. This variety of properties may be due to the increase in the number of items produced by one company, and also to the largeness of territory which may be served by a single enterprise. Investment and maintenance policies relating to property often constitute a major problem in a large concern. Depreciation policy presents an involved problem for a business owning a variety of properties, especially if these properties have various lengths of useful life.
6. Variety of investor: One of the important phenomena of modern business is the fact that the investment in an individual enterprise, especially the corporation, may be provided for by a large number of persons. Many investors, having varying contractual relationships with the company, make accurate records necessary to disclose the status of each.
7. Taxes and government control: Income tax laws require the exact computation of income. Companies Act also requires periodic reports and returns to various governmental agencies. The necessity for compliance with these laws has caused businessmen to see the additional need for adequate records.
8. Uniform records: The old tendency to use accounting methods planned for the convenience of the individual firm has given way to a trend towards uniformity in accounting systems. Statistics are valuable to the businessman in the formation of policies. Accounts, when they are comparable, are an important source of statistical data.
Business cycles and their allied repercussions constitute an important aspect of the modern economic order. Studies of their causes and effects are aided by the information obtainable from uniformly kept accounts. The business cycle increases accounting problems relating to fluctuating prices and revaluation of assets.
Trade associations in some cases foster the use of uniform records and employ the information obtainable from the comparable accounts for the benefit of individual members and the industry as a whole.
Credit studies are simplified when the financial reports on which they are based, whether for obtaining credit at a bank, or from another concern, or in the open market, have been prepared in such a way as to be comparable with other similar reports.
Rate marking is a difficult task. Its dependence upon uniform accounting system is illustrated by the fact that the public utilities are required to use uniform systems established by the rate making governmental agencies.
1. Size: Business units have grown to tremendous proportions. Operations are too expensive to be comprehended by an individual without summarized reports. Information for management must be obtained from accounting reports since personal inspection of all operations is physically impossible and verbal reports are inadequate. Objectivity of management enables policies to be formulated without personal bias, but it cannot be maintained in a large business without comprehensive reports.
2. Complexity of business organization: Operations of an enterprise are becoming more complex under modern economic condition, necessitating more nearly complete control through accounting.
3. Separation of management from ownership: The joint stock form of business organization has tended to bring into existence managers, who are not owners, and owners, but share-holders control the management, and in order to do this effectively these owners must have records and reports which clearly indicate what the management has been doing.
4. Competition: In case of keen competition, profit margins tend to become narrower. Under such conditions the information to be obtained from accurate accounting records can be especially helpful to the business management in its endeavor to reduce cost and avoid selling at a price that is economically unsound. At a time when profit margins are narrow, haphazard guessing and wrong forecasting may be disastrous.
5. Variety of properties: Besides the increase in the size of the business unit, there has come to be a general diversity in the properties owned by a business. This variety of properties may be due to the increase in the number of items produced by one company, and also to the largeness of territory which may be served by a single enterprise. Investment and maintenance policies relating to property often constitute a major problem in a large concern. Depreciation policy presents an involved problem for a business owning a variety of properties, especially if these properties have various lengths of useful life.
6. Variety of investor: One of the important phenomena of modern business is the fact that the investment in an individual enterprise, especially the corporation, may be provided for by a large number of persons. Many investors, having varying contractual relationships with the company, make accurate records necessary to disclose the status of each.
7. Taxes and government control: Income tax laws require the exact computation of income. Companies Act also requires periodic reports and returns to various governmental agencies. The necessity for compliance with these laws has caused businessmen to see the additional need for adequate records.
8. Uniform records: The old tendency to use accounting methods planned for the convenience of the individual firm has given way to a trend towards uniformity in accounting systems. Statistics are valuable to the businessman in the formation of policies. Accounts, when they are comparable, are an important source of statistical data.
Business cycles and their allied repercussions constitute an important aspect of the modern economic order. Studies of their causes and effects are aided by the information obtainable from uniformly kept accounts. The business cycle increases accounting problems relating to fluctuating prices and revaluation of assets.
Trade associations in some cases foster the use of uniform records and employ the information obtainable from the comparable accounts for the benefit of individual members and the industry as a whole.
Credit studies are simplified when the financial reports on which they are based, whether for obtaining credit at a bank, or from another concern, or in the open market, have been prepared in such a way as to be comparable with other similar reports.
Rate marking is a difficult task. Its dependence upon uniform accounting system is illustrated by the fact that the public utilities are required to use uniform systems established by the rate making governmental agencies.
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