Wednesday, August 26, 2009

Difference Between Social Accounting and Private Accounting and its Uses

following are certain similarities and difference between private accounting and social accounting.

1. Private accounting is done on the method of double entry book-keeping. That is each transaction is recorded twice in the books of the business an for instance a cash sale will be entered once in the appropriate ledger accounts as a credit to the good sold and it is again entered in the cash amount as a debit in respect of the cash received. In social accounting, however, cash transect on are not separately presented. On the other hand cash balances are recorded in the capital transaction account. This shows that social accounting also asrpts the double entry method but the second entries are not recorded in detail.

2. An other difference between private accounting and social accounting is that private accounts relate to the individual businessmen. Each transaction is thus recorded from one point of view only. On the contrary social accounts related to a connected and closed network of all businessmen. There are no loose ends. Each transaction is recorded from the point of view of the two transactors connected with it.

3. The third difference between private accounting and social accounting is that the accounts of private businessmen are usually presented in the form of a profit and loss account which shows income and its allocation. There is also set out a balance sheet which shows the stock of assets and liabilities at the end of accounting period. The profit and loss account of a private individual resembles in social account ting to what is called as the appropriation account. The only difference is that in private accounting, the profit often includes some elements of costs such as depreciation of plant and machinery and fees paid to the directors of company. On the other hand in social accounting these incomes are shown net. There is no counterpart at all of balance sheet in social accounting since there are insuperable difficulties in collecting the necessary information completely and on a uniform basis regarding assets and liabilities of all transactors in the economy.

Uses of Social Accounting

Uses of social accounting are given below:

(i) One purpose of the preparation of social accounting is to give the reader a clear picture of the economy as a whole. In social accounting we find a classified account of the various transactions entered into the various sectors of the economy. From these transactions, we can have a fairly clear view of the working of the entire economic system. These days we are not interested so much in the accounts of private businessmen, however big and prominent they may be. On the other hand we are interested in the health of economy and the way in which it functions. It is understood that a healthy economy is able to impart strength and health even to the economic affairs of private individual intelligent citizens are keen to know that how an economy is faring at particular moment or in a particular period of time. This is clearly reflected in social accounting.

(ii) We are all fairly familiar with the objectives placed before our Five Year Plans. They all relate to the economy as a whole. We want economic growth with stability or we want to build up a self reliant and self generating economy. How far we are able to achieve these objectives can be very well found out from the depreciation of various transactions and activities given in social accounting. Thus if we want to promote efficiency and stability of our economy preparation of social accounts is must.

(iii) Measurement of economic welfare is another purpose of the preparation of social accounts. We have mentioned above our Five Year Plans. At the end of each plan, we naturally like to known how far the masses have benefited from the plan. In other words we want to know o what extent economic welfare of the masses has been promoted. From social accounting and its study we can know at glance to what extent the masses are better off than at the time when planning started.

(iv) There is another important use which social accounting serves. From study of social accounting we are in position to find out how the different sectors of economy are inter-related to each other. We can for instance find out to what extent the industrial sector depends on the agricultural sector. We can also know to what extent the growth of our export sector is conditioned by our industrial and agricultural growth. To economists and persons engaged in economic planning. These inter-relationships are of very great use. In fact the information that social accounting furnishes about the mutual relationship of the various sectors of the economy is indispensable.

(v) Social accounting serves a very practical purpose for the statesman, the government administrator and the politician. It is on the basis of social accounts that intelligent and effective government policies in fiscal, monetary and other economic spheres can be formulated and executed.

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