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Purpose of Accounting Assignment

   

Added on  2020-07-22

18 Pages3334 Words164 Views
Accounting

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Part 1................................................................................................................................................1A) Purpose of accounting.......................................................................................................1B) Users of accounting information.......................................................................................2C) Distinguish between financial and managerial accounting...............................................3Part 2................................................................................................................................................4A) Journal entries...................................................................................................................4Part 3................................................................................................................................................6A) General ledger accounts....................................................................................................6B) Trial balance....................................................................................................................11Part 4..............................................................................................................................................11A) Income statement.............................................................................................................11B) Balance sheet...................................................................................................................12CONCLUSION..............................................................................................................................15REFERENCES..............................................................................................................................15

INTRODUCTIONAccounting is crucial requirement of the business in order to attain complete clarity offinancial performance of it in the best possible way. Present report discusses about purpose ofaccounting and importance of the same in taking effective and enhanced decisions with muchease. Moreover, users of accounting information are explained which require assessinginformation to take decisions. Difference between managerial and financial accounting is alsodiscussed in the report. Furthermore, accounting records are prepared of various organisation andfinancials are extracted in effectual manner. Thus, accounting serves useful information toexternal as well as internal users which have interest in the functioning of business.Part 1A) Purpose of accountingAccounting is required in every firm whether small or medium or large. It is quiteessential to record each and every transaction of company so that financial statements may beeasily made. The main purpose of accounting is to provide necessary information to thestakeholders which initiate funds in the business. Transactions are recorded, then financialstatements are prepared such as cash flow statement, balance sheet and income statement whichare important part of financial reports. This information is required by various stakeholderswhich have staked in the company. Thus, stakeholders such as investors, creditors and otherparties are benefited by such information and as a result, they are able to make effective andbetter decisions whether to invest money in the firm or not (Dechow and Tan, 2017).Accounting information is segregated in business transaction and these are furtherrecorded in journal entries. When business has recorded all journal entries, then general ledgeraccounts are prepared for each and every account. From this, trial balance is extracted to analysedebit and credit transactions and consecutively balancing the same for better results to beobtained. From trial balance, income statement and balance sheet both are prepared. Moreover, itis also required to analyse cash position of business and as such, cash flow statement is preparedin effective way. Statement of changes in equity is prepared as well. These all financial information ispossible only when accounting records are properly made by the firm. Purpose of accounting isalso to plan out things in the best possible way. In relation to this, business allocates its scarce1

resources in that way so that maximum benefit can be generated out of it. Thus, accounting helpsto clarify expenses and income of business and as such, it helps organisation to maintain controlon its expenditures and adequate revenue can be generated. Moreover, accounting providesperformance analysis of company and as such, shareholders are benefited by the accountingreports and they may easily assess organisation's capability in generating earnings in the bestpossible way.B) Users of accounting informationThere are various stakeholders of the company which has interest in functioning ofbusiness and as such, they require accounting information. These are called users of financialinformation (Bloomfield and et.al, 2017). They can be investors, creditors, suppliers, employees,government and many other stakeholders which require assessing performance of company asthey are directly or indirectly connected to the company and as such, accounting information isquite relevant to them. Various users of accounting information are listed below-1. Investors- Investors require accounting information in order to evaluate performance of companywhether earnings are satisfactory or not. This help them to take decision whether to providefunds to company or not. Thus, more investment can be made if firm has adequate earningswhich is reflected from financial statements.2. Creditors-They assess credit worthiness of organisation in effective way. They determine liquidityhealth of firm whether money will be repaid within stipulated time or not. Thus, accountinginformation such as financial statements are required to assess creditability of organisation.3. Suppliers-They provide raw materials to organisation so that production may be achieved in thebest possible way. Suppliers provide materials on credit basis and as such, they also requireevaluating financials of business and as a result, they take decision whether to provide goods tocompany or not.4. Employees-2

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