Accounting involves identifying, measuring, and communicating economic information about a business to help users make informed decisions. It provides key financial information through financial statements, which report on the business's financial position and performance over time. This helps management run the business effectively, stakeholders monitor it, and potential investors evaluate it. Financial terms like assets, liabilities, and equity are defined, with assets being owned items of value and liabilities being debts owed.
2. Define accounting in business
The American Accounting Association define
accounting as follows:
"the process of identifying, measuring and
communicating economic information to
permit informed judgements and decisions by
users of the information.
3. It suggests that accounting is about providing information to
others. Accounting information is economic information - it relates
to the financial or economic activities of the business or
organisation.
- Accounting information needs to be identified and measured. This
is done by way of a "set of accounts", based on a system of
accounting known as double-entry bookkeeping. The accounting
system identifies and records "accounting transactions".
- The "measurement" of accounting information is not a straight-
forward process. it involves making judgements about the value of
assets owned by a business or liabilities owed by a business. it is
also about accurately measuring how much profit or loss has been
made by a business in a particular period. As we will see, the
measurement of accounting information often requires subjective
judgement to come to a conclusion.
4. - The definition identifies the need for accounting
information to be communicated. The way in
which this communication is achieved may vary.
There are several forms of accounting
communication (e.g. annual report and accounts,
management accounting reports) each of which
serve a slightly different purpose.
The communication need is about understanding
who needs the accounting information, and what
they need to know.
Accounting information is communicated using
"financial statements"
5. IMPORTANCE OF FINANCIAL
MANAGEMENT IN BUSINESS
There are two main purposes of financial
statements:
(1) To report on the financial position of an
entity (e.g. a business, an organisation);
(2) To show how the entity has performed
(financially) over a particularly period of time
(an "accounting period").
6.
7. As we have said in our introductory definition,
accounting is essentially an "information
process" that serves several purposes:
- Providing a record of assets owned, amounts
owed to others and monies invested;
- Providing reports showing the financial
position of an organisation and the profitability
of its operations
8. - Helps management actually manage the
organisation .
- Provides a way of measuring an organisation's
effectiveness (and that of its separate parts and
management)
- Helps stakeholders monitor an organisations
activities and performance
- Enables potential investors or funders to
evaluate an organisation and make decisions
9. FINANCIAL TERMS:
ASSETS
Assets are items with money value that are
owned by a business. Some examples
are:cash, accounts receivable (selling goods
or services on credit), equipment (office,
store,delivery, etc.), and supplies (office,
store, delivery, etc.).
10. LIABILITIES
Liabilities are debts owed by the business.
Paying cash is often not possible or
convenient, so businesses purchase goods
and services on credit. The name of the
account used is Accounts Payable. Another
type of liability is Notes Payable. This is a
formal written promise to pay a specific
amount of money at a definite future date.
11. Equity may refer to:
Finance, accounting and ownership
Equity (finance), the value of an ownership interest in
property, including shareholders' equity in a business
Stock, the generic term for common equity securities are
called stock;
Home equity, the difference between the fair market
value and unpaid mortgage balance on a home
Private equity, stock in a privately held company
Equity in income of affiliates, an accounting term
referring to the consolidated or unconsolidated
ownership in affiliate companies
EQUITY