Accounting vs Accountancy
- mansigoyal | Sat Mar 13 2021
It is said often, you learn better by graphical representations than by text material. Imagine a venn diagram with the term “Accounting” in the inner circle and “Accountancy” in the outer one. Analyse it. Yes, you got it right. Accountancy is a wide term which includes accounting also, whereas accounting is one of the many elements of the appellation Accountancy. Accounting is the process of identifying, recording, classifying and summarising the financial transactions of any entity in pursuit if GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting System) to maintain a true and fair view of the financial activities of the business for its end users. There are numerous end users of the accounting information such as creditors, investors, management, employees, government, business owners and general public. The interpretation of financial information and communicating it to its end user base is coined as Accountancy. Therefore, Accounting without Accountancy is inefficacious. Accounting doesnot have the capability to enable a smooth decision making process whereas Accountancy stimulates the same by presenting financial reports. Lets make this thought lucid. Here is a brief instance of it. A business man has invested Rs.100000 in a business and bought stock worth Rs.50000. He carries on his business successfully and makes profit which is the prime motive of every business. The business owes to its creditors. Each such transaction is properly recorded in the books of accounts. It has followed all the accounting standards and principles. After preparing the financial statements, the information has to be communicated to the creditors and employees. But the question is how would creditors know about the cash flow position of the business and how would employees know about their increments based on profits, if any? Hence, interpreting the financial statements and communication is the cornerstone of the entire process and whole of the Accountancy revolves around it. Accounting has several branches with each branch having its own momentum.Few of them are Cost Accounting, Management Accounting, Tax Accounting, Financial Accounting, Social Accounting, Not for profit Accounting, Project Accounting and so on. Today accounting is widely based on double entry system propounded by Luca Pacioli, the father of Accountancy. Double entry avers that every entry in the books of accounts requires a corresponding entry in the opposite account. These two sides are cleped as Debit and Credit. There can be more than two accounts debited or credited but the numerical total of debit side will always be equal to the credit side. This system follows the golden rules of accounting and as a result of which the summation of Liablities and Equity of a business exactly equal to the Assets of any business.