accounting is a discipline which handles monitory or numerical values. For example, it is not very helpful to say: "Last year we had four machines and 60 items of stock, and this year we have five machines and 45 items of stock.". It is the money values which are useful to us. Whilst we are concerned with money, we should note that there are limitations to the use of money as the unit of measurement.
(a) Human asset and social responsibility accounting
We have seen that accounting includes financial accounting and management
accounting. Both of these make use of money measurement. However, we may want
further information about a business:
1.Are industrial relations good or bad?
2. Is staff morale high?
3. Is the management team effective?
4. What is the employment policy?
5. Is there a responsible ecology policy?
These questions will not be answered by conventional business accounting in money terms but by "human asset accounting" and "social responsibility accounting". These subjects have not yet been fully developed and are outside the scope of your syllabus.
(b)Devaluation
The value of money does not remain constant, and there is normally some degree of inflation in the economy. We will look at the steps that have been taken to attempt to adjust accounting statements to the changing value of money later in the course. The Concept of the Business Entity
The business as accounting entity refers to the separate identities of the business and its owners.
(a) Sole trader
There must always be a clear distinction between the owner of the business and the
business itself. For example, if Mr X owns a biscuit factory, we are concerned with
recording the transactions of the factory. We are not concerned with what Mr X spends
on food and clothes. If Mrs Y, works at home, setting aside a room in her house, an
apportionment may have to be made.
(b) Partnership
Similarly, the partners in a business must keep the transactions of the business
separate from their own personal affairs.
(c) Companies
In law, a company has a distinct "legal personality". This means that a company may
sue or be sued in its own right. The affairs of the shareholders must be distinguished
from the business of the company. The proprietor of a limited company is therefore
distinct from the company itself.
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