Accounting Principles: Scope, Purpose, and Ethical Function

ACCOUNTING
PRINCIPLES

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART-1 ...........................................................................................................................................3
Scope and purpose of accounting-based.....................................................................................3
Ethical accounting function.........................................................................................................6
PART-2............................................................................................................................................8
Preparation of income statement, balance sheet and ratio analyses ...........................................8
PART-3..........................................................................................................................................10
Prepare the cash budget of 12 months ......................................................................................10
Importance and limitations of budget in a company................................................................11
Solutions used in budgetary control .........................................................................................14
CONCLUSION.........................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
This report talk about the accounting concept that is most important for every business
for accomplishing the targets in an optimised manner. Accounting is the process of recording,
assorting, summarising and interpreting the financial data to the internal and external users. It
helps to appraise the execution of the company. This accounting information is utilized by the
investors for investment purpose. This data is used by the government, creditors, banks and
financial institutions. The prime purpose of the accounting is to identify and record the
transactions, gather the financial information and to check the findings of the business. Further
this report analyses the budget that how budgetary tool is essential for the organisation. This
reports includes all the financial instruments like financial statements, types of budget and ratio
analysis. Company has done deep research on the benefits or limitations of the budget. Company
has learned the budgetary solution techniques for resolving the problem. It helps to take
economically feasible conclusions (Aggarwal, K., 2022).
MAIN BODY
PART-1
Scope and purpose of accounting-based
Accounting consists the recording, summarizing, recording, and analysing process that
helps in financial transaction in the organization. The accounting core function is to evaluate,
report and compile the accounting data or information of organization performance, financial
position of the organization as well as cash flow of the company. This data of financial assists to
decision making regarding various management activities of business such as investment,
budgeting, lending the money and so on.
Record transactions: Holding an exact, effective and organized and complete record of
all the accounting transactions in the organisation, it is known as the first and core role of the
book keeping because all over accounting system is based on the records. It is the recoding about
all the financial information of the business. This stage is known as bookkeeping. The
transactions are recorded on the day-to-day basis. It is the low level work in the organisation and
is clerical in nature (Alanzi, and Alfraih, 2018).
Income statements: The main motive of this accounting is to furnish efficient, certain
and prompt accounting data or information. This statement assists to provide the information that

is related to the outcome or performance of the business. In case of the net loss and income, it
analyse the net situation or position. The statement of income helps to matches the expenditure
and revenue. It has been made for a certain period for the purpose of gather the information
regarding performance of the business. In this company compute the gross profit or net profit to
know the profitability of the business.
Balance sheet: It helps to evaluate the financial position of the business. It has been
divided into two parts or section that are assets and liabilities. Assets are shown at the right side
of the statements and liabilities has been shown at the other side of the statement that is left side.
It is helpful to forecast the borrowings, lending money for the future and analyse that how the
cash flow and the future revenue divided or distributed into the business with interest rate. It
presents the performance of the structure that are going and success to arise finance in future. It
is the statements which depicts the position of the owners equity and debt. It is prepared by every
form of organisation whether it is company, partnership, sole proprietorship or cooperative
society (Bruno, and Lapsley, 2018.) .
Cash flow statements: It aids to summarize and evaluate the cash amount and cash
equivalents. It helps to measure how effectively the business maintain the cash position. It mean
how they generate the cash for do payments of the funds for the activities of operational and
debt. This statements consist three elements that are operating, financing and investing activities.
Operating activities includes the transaction from the core business and the principal revenue
producing activities. Financing activities is the capital structure of the company such as issue of
shares and debenture and redemption of preference shares, dividend received, interest paid on
loan and debentures. Investment activity is related to the purchase or disposal of long term
financial assets of the company.
Decision making: The book keeping system helps to the company in decision making
regarding the operational activities of the business. It is helpful for the managers to develop and
evaluate the business plan and policies to enhance the operational activity of the business. This
accounting information helps to evaluate the several option and choose the best profitable option
for the decision making. It helps to disseminate all the financial information to the users of the
financial statements.
Liquidity: Accounting aids the company to determine the business liquidity that are
crucial part at the time of the payment of the financial commitments. The information reduces