2. Definition of Bookkeeping
and Accounting
Accounting
The process of
collecting,
collating, recording,
classifying,
interpreting and
reporting of the
financial
information of an
organization to
enable users make
informed decisions.
Bookkeeping
The act of recording
business
transactions
systematically in
such a way that the
financial position of
a business can be
ascertained at any
time. Bookkeeping is
an integral part of
Accounting.
3. Importance of Bookkeeping &
Accounts
Used for decision-
making purposes by all
users.
Provides permanent
record for all business
transactions of an
organization.
Helps to ascertain the
profitability of a business.
Helps to prevent fraud.
Facilitates reference
making to past
transactions.
Accounting records are
used for tax assessment
Helps to discover
hidden losses.
Identifies the working
capital state of a
business concern in
order to avoid sudden
4. Users of Financial Accounting
Information
Owners
Employees
Competitors
Tax
Authorities
Business Managers
Investors
Banks
Financial
Analysts
Creditors
Auditors
5. Business Managers
These are the team saddled with the responsibility to
ensure the all-round progress of business.
They need a periodic statement of account in order
to know when certain changes are needed to
improve the lot of business they are managing.
If there is no financial accounting statement that
details the state of business, there is a tendency for
one to assume everything is alright when it is not.
6. Business Owners
These could be inform of Board of Directors or the
original promoters of the business. In a standard setting,
business owners usually differ from business managers;
otherwise, same set of persons play both roles.
Business owners need a periodic statement of account in
order to have a first hand review of the state of their
business- the competency of management and the
profitability of business.
Business owners who care less about the financial report
of their business can easily be swindled by fraudulent
managers.
7. Employees
These are team of workers employed to serve in one
capacity or the other, in achieving organizational target.
They get a return in form of daily wages or monthly
salaries. In other cases, employees are paid hourly.
Employees always seek to be privy to the financial
statement of the organization they serve, in order to
decide on whether to continue or discontinue their service
to the organization.
Remember, no one in his right senses would want to
remain in a sinking ship if there is a possibility of escape.
8. Competitors
These are organizations and businesses in the same
industry or line of business with the given
organization.
Organizations make effort to spy into the financial state
and general wellbeing of competing firms and then find
ways to outsmart their competitors just to remain afloat
or even maintain leadership in the industry.
9. Tax Authorities
These are the government regulatory team saddled
with the responsibility of ascertaining the amount of tax
payable by registered businesses to the government.
Taxation is one of the major revenue sources for
government; hence, tax authorities need the financial
statement of companies in order to ascertain the exact
tax revenue due to the government.
Tax authorities won’t need to depend on companies to
pay the due tax; they need to ascertain it themselves
by going through the financial statement.
10. Investing Public
These are the members of the public who would want to
be stakeholders or shareholders with the given
organization.
The primary goal of every investor is to maximize returns
on investment. Hence, every potential investor would
want to be sure he is sowing in the right soil. And they can
only ascertain this by studying the financial statement of
the company in question.
You have to understand that there are many organizations
that appear promising externally, but internally, basic
structures are on imminent collapse.
11. Banks
Banks are the primary lenders and financial
benefactors of business.
Banks will always want to know the state of a
company’s financial structures before striking a loan or
intermediary deal with such company.
This is where the financial accounting statement serves
a great purpose for banks.
12. Financial Analysts
These are professionals who study and analyze financial
trends in business as to enable them inform their clients,
government and general public accurately on the best
investment or partnership decisions to make with a given
company following the existing trends.
They can only make such predictions when they have
access to financial accounting reports of different
organizations.
Without this, it would be difficult for financial analysts
to make predictions that guide potential investors and
stakeholders of business.
13. Creditors
These are otherwise called trade creditors. They are
suppliers who supply their products on credit to a given
organization on an agreement for a deferred payment.
The fear of losing their money in the name of bad debt
is one major reason why creditors study the financial
accounting statement of their client company, in order
to determine how solvent the organization is.
Remember, the solvency of a business outfit lies more
with its working capital base and not on fixed assets-
this is what creditors are interested in.
14. Auditors
These are trained professionals whose job is to
periodically review the financial accounting reports
of an organization in order to check against
fraudulent activities by unscrupulous bookkeepers
and accountants.
Auditors- whether private or public- must be
professional accountant who knows their onions
and have the ability to interpret financial report.
That is the only way they can detect frauds and
inaccurate reporting.
In real practice, there are professional rules of
engagement, which every auditor must adhere
strictly to in carrying out his duty.
