“Accounting is that discipline which measures, records, reports and interprets financial and other information about an entity to interested parties to enable them to make appropriate decisions”
Accounting is essentially a system for showing what the financial state of a business is at any one time.
Accounting and financial information allows users to:
See how the business is going
See how aspects of the firm can be improved
Control your money
Plan for the future
Purpose of Accounting
1 Accounting can act as a form of communication
You can think of accounting as a form of language between owners of a business
This language is not alphabetical letters but instead it is expressed in terms of dollars
Can be communicated to relevant users through graphs, reports and tables
2 Accounting can supply information for decision making
Decisions are made at all levels of management
Suitable information will reduce the uncertainty decision makers may face
Accounting can aid users of information to make accurate decisions
3Accounting can assist a manager plan their business
incorporates decision making about the best course of action to take
Planning is essential for business success and requires regular revision in order to respond to change
Planning is a management activity that is supported by accounting information
4Accounting can act as a control device
Accounting information assists managers to have the ability to control their operations
Accounting also ensures that accurate and reliable information is provided
Control involves ensuring events happen as planned
Comparison of actual results with planned
Corrective action and revision of plans
5Involves the following procedures:
identifying and capturing relevant economic information
recording the information systematically
analysing and interpreting the information
reporting appropriately to users
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