Purpose of accounting.
The purpose of accounting is to accumulate and report on financial information about the performance, financial position, and cash flows of a business. This information is then used to reach decisions about how to manage the business, or invest in it, or lend money to it. Accountants develop systems and processes to evaluate and analyse different types of transactions. Each transaction that involves the acquisition or sale of goods and services must be reported in the general ledger and posted to relevant accounts. Bookkeeping is the function of accounting that helps maintain these types of transactions as debits and credits; this data can then be used to create accurate and timely financial reports.
The need to record financial transactions.
Companies keep record of their financial transactions, There are a number of reasons why recording your transactions is so important. The first being that when you keep close track of all of your transactions you are ensuring that you know where your money is coming from along with where its going to. Companies also need to record their transactions in order to keep track of their budget, if you have no idea where you are spending money it becomes much more difficult to make a budget and stick to it. Also, Shareholders read accounts to examine the health of business, and the returns (dividends) that they can expect to make. Employees read accounts to see how safe their jobs are. The Inland Revenue read accounts to calculate how much tax businesses should be paying. Suppliers read accounts to check that the company they supply with goods on credit will be able to pay the money owed when it becomes due. Financial information can be fed to those who require such information for decision-making and record-keeping purposes. For example, managers need information in order to manage the business efficiently and constantly to improve their decision-making capabilities. Shareholders need to assess the performance of managers and need to know how much profit of income they can take from the business. Suppliers need to know…