Accounting is the practice of "...maintaining, auditing and processing financial information
Accounting Assignment
Helen Clayfield
Emma Carnell Foundation Degree Business
Accounting is the practice of “…maintaining, auditing and processing financial information…” () for the purpose of a company, persons or organisation. There are some fundamental parts of accounting which are; “Identifying, measuring and communicating” (Black, 2000). You need to identify the important financial sections of a company, person or organisation which will include the companies assets, liabilities, capital, income and of course expenditure. You will also need to measure “… monetary values of the key financial components in a way which represents a true and fair view of the organisation” (Black, 2000). Finally there is the communication side of accounting, it is vital that a company, person or organisation can communicate all of the financial information gathered so in turn users, whether they are internal or external, will be able to receive the correct financial information and be able follow it. There are two forms of accounting they are Financial Accounting and Management Accounting. Financial Accounting is concerned with the preparation of financial accounts for the benefit of people outside a company or organisation. Management Accounting is financial information used by managers within a company or organisation to make financial decisions based on the information that the accounts provide.
There are many people who would be interested in company’s accounts, they are divided up into two groups; External Users and Internal Users. Within the External Users group are; Investors, lenders, Suppliers, Customers, prospective buyers, other businesses and the Government. Included in the Internal Users group are the Owners, Shareholders, the Board of Directors and Employees. These individuals each have reasons why they would be interested in the accounts of a company. Investors for example would not want to put capital into a company if that company was in financial trouble, there would be a risk of the investors losing some if not all of the capital they had invested. Lenders would want to make sure that the company is in a strong financial position to repay on time any monies lent to them. Similarly for suppliers they would like to be assured that any supplies ordered would be paid for once delivered. Customers on the other hand would want to make sure that any orders made between themselves and the company would be delivered. Prospective buyers of a company would want to check out the financial state of a company before considering making a bid for the company. The Government uses the information gathered within a company’s accounts to asses the amount of tax a company would have to pay and the information is also used to assemble National Economic Statistics and of course a rival business would be interested in the published accounts of a particular company, person or organisation as they would want to find out how well the competition is doing and whether it would be worth trying to compete financially if the company, person or organisation is a successful one. A Company’s owners would be interested in the accounts as they would want to know if their company was making a profit or a loss and also where the companies money was being spent, Shareholders would want to make sure that their shares are increasing and not decreasing in value. The Board of Directors who are chosen by the shareholders would want to keep the shareholders happy by making sure the company is making a profit not a loss and finally employees they want to make sure that their jobs are secure and that the company is in a financial position to pay their wages, pensions and bonuses.
