Nature of Accounting and the Accounting Standard

disposition of Accounting and the Accounting Standard Background Accounting is an important affair for affair and it is dubbed language of logical argument activities conducted by trues. People estimate it is utilize to croak business relationss per se to all stakeholders. However, or so sight argue that the functions of business relationship ar non that easy. Except the communication tool, account statement acts as many early(a) difference roles in business. When doing account statement, different model may be used. There argon many issues about write up standard nowadays.To getting a subjective view of report, it is demand to guess how account is worked. This essay get out analyze the application of accounting in the various situations to reach a conclusion. It will give some military position for accounting also. Firm as an accounting inclination As we hit the sack, accounting was widely used in the firm. In accounting, firm means some business entity aimi ng at earning economic profit. In general, there argon ternion types of firms proprietorship, partnership and corporation. Firms are classified by the types of ownership, limitation of obligation and so on.According to Scott Besley (2007), a proprietorship and partnership is an unincorpo prescribed business. Proprietorship firm owned by bingle individual while partnership owned by dickens or more people. A corporation is a intelligent entity by a state. The owners and managers may not be the analogous person. Corporation crap unlimited life and enjoin limited liability. Owners have no responsibility for liabilities of the corporation. However, for proprietorship and partnership, owners must payback all liability of creditor. Although there are various classifications for firm, its object is quite same.The general object of a commerce firm is earning profit. However, firms tin cannot amount focus on the monetary income. There are many other aspects must hit the books. T he firm which is just care about financial achievement will suffer cast ethic dilemma. Dobson (1997) specify the behavior that firm just consider about self-interest individualistic and opportunistic as finance substitution class. He criticized that it would cause some other lost for people. To be an ethic firm, it should take on object carefully to maximize the benefit for all relevant people.Rather than outpouring business individually, people do commerce via firm. Firms exist because it can deliver a more efficiency operation environment for people. However, even if firms can offer a better way for people doing business, we shouldnt ignore the troubles arising from it. Accounting and transaction Transaction plays a special role in firms daily operation. In general meaning, transaction is transform of goods or services between entities, as well as other events that have an economic impact on a business.It is a businesss economic bring down by accounting (Weygandt, Kimmel, & Kieso, 2011). It should be crystalise that not all events generated in business process can be enter. Accounting must considers about what transaction should record and how it is record. There are two major assumptions about whether transaction should be record. The first one is monetary unit assumption. In accounting, we just record the transaction selective information which can be express in money term (Weygandt, Kimmel, & Kieso, 2011). another(prenominal) assumption is economic entity assumption.Accountant must just account the transaction relevant to certain firm. The active of its owner or other economic entity should not be record in the firms account (Weygandt, Kimmel, & Kieso, 2011). In addition, such action must affect the component of accounting equating dually. That means it should affect assts, liability or equity. Measurement method in accounting As it mentioned before, the major object of account is identify, record and communicate the transaction. In real life, the environment for accounting is changing continuously.So, accountant should know how to record and measure transaction properly. To facing price changing, there are two major approaches to record and measure transaction diachronic exist precept and fair economic value principle. When utilize historical cost principle, companies record assets as its cost (Weygandt, Kimmel, & Kieso, 2011). That means if the value of goods in such transaction is changing, it will keep the original record of such goods. However, we should update the record of assets value according to the market price in fair value principle.When managers decide which standard should be used, there are various factors bring to be consider. Inflation is necessary for measurement method decision. Alhashim & Arpan (1992) claimed that when price is stable, the historical cost principle could will an objective view for companys performance. Managers may prefer this method to measure transaction. However, study also guide that when it is high inflation, using historical cost principle will provide some useless information. If the price is changing frequently, the historical cost principle will not suitable.For theoretical account, in British, because it was suffer from high inflation rate in the history, the accounting standard in this country select fair-value principle. (Alhashim & Arpan, 1992) exist measurement is an important part in accounting. Since the component of cost for business is complex, it will select material cost for example. There are two common principles for material cost evaluation. One is average value method, another is FIFO method. Companys objective should be considered when choosing those approaches of cost measurement.When using average cost method, companys income statement will show lower income so that company will enjoin lower tax. However, when firm choosing FIFO method, they will pay higher tax because of the high income deliver by income statement. When comp any wants to reduce tax cost, they may choose average cost method. Otherwise, they will choose FIFO method to attract investiture by showing well performance. Except form pervious example discussed, there are many other factors could affect the measurement method.For example, David Solomons (1970) think that feasibility like objective, low cost of implementation and ease of understanding for users will affect the judgment for measurement method. In different condition, managers will choose different principle. So, it is difficult to say which principle is better. Conclusion By analyze relevant item of accounting, the perspective of accounting is more distinctly now. Transaction is a vital component of accounting and there are various principles about it. However, accounting is related to other aspects also. Merely defined accounting as analyzing transaction per se is not false save not objectively.Communication is also a vital part of account. It is properly to descript accounti ng as a language of business. As mention before, there are many communicating methods and standards for accounting. Different regions may have different accounting language (Alhashim & Arpan, 1992). It is a challenge for current international company. To solve this problem, it is necessary to build and spread a unified standard for international accounting right now. Reference Alhashim, D. D. , & Arpan, J. S. (1992). International dimensions of accounting. Boston PWS-KENT publishing company.Dobson, J. (1997). Finance ethical motive the rationality of virtue. Cummor Hill, Oxford OX2 9JJ, England Lanham u. a. Rowman & Littlefield. Scott Besley, E. F. (2007). Essentials of Managerial Finance. Natorp Boulevasr, Mason OH South Westren College. Solomons, D. (1970). Assets valuation and income determination valuate the alternative. In R. R. Sterling, Assets valuation and income determination (p. 105). 4431 Mt. Vernon, Houston, Texas Scholar Book Co. Weygandt, J. J. , Kimmel, P. D. , & K ieso, D. E. (2011). Financial Accounting. regular army John Wiley & Sons, Inc.