Examine the purpose of the accounting function within an organization

 

What is accounting?

 

The practice of recording a business's financial transactions is known as accounting. The financial statements of an organization provide an overview of its operations, financial situation, and cash flows. An accounting period's worth of financial transactions are summarized in financial statements. These transactions are gathered, looked through, and reported to oversight groups and tax collecting agencies (Fernando, 2022).

The practice of documenting, classifying, and summarizing items that are, at least in part, pecuniary in character is known as accounting. The American Institute of Certified Public Accountants' Committee on Terminology created the phrase. The identification, measurement, recording, and communication of financial information can be summed up as accounting. Accounting is the process of documenting financial data regarding business activities and producing reports that show the capital, assets, and liabilities of the organization.

 

Accounting scope 

 

Accounting is widely used throughout all social strata and all professions, in addition to the corporate world. Today, financial transactions are necessary for all social structures and occupations. Therefore, it is crucial to document and compile these transactions as they happen. Accounting systems are used by all enterprises and a sizable number of non-trading organizations. Panchayats and municipalities are additional examples of local self-government. Chartered accountants, attorneys in practice, surgeons, and others apply specific, appropriate accounting techniques.

As a result of research in this field, new applications for accounting principles and policies have emerged. National accounting, human resources accounting, and social accounting are a few examples of current accounting system uses (Accounting theory, 2022).

The goal of accounting is to analyze financial activities in a methodical manner and organize them so that they are pertinent and simple to comprehend. Its objective is to provide quantitative data about economic entities, mainly those that are financial in nature. Making economic judgments and choosing the best course of action are made easier with its assistance.

To be more effective, accounting should provide a wide range of data in a complete information system. The primary objective of accounting is to enable users to make judgments about a variety of situations using accounting data given through various financial statements:

• Accounting is a skill that calls for the application of knowledge made up of certain widely accepted theories, principles, notions, and traditions.

 

• Accounting is a skill that needs the application of knowledge made up of some widely accepted theories, principles, notions, and traditions. It enables us to reach our goals and explains how to do it as effectively as possible. The more we practice a craft, the better we get at it. Accounting is a science because it uses certain, universally applicable double entry system techniques to record, categorize, and summarize company actions.

 

• Financial forecasting, which helps in anticipating profitable initiatives from which the accountant chooses the one that will be most advantageous for the company, appears to be a significant component of accounting.

• It aids in the decision-making process for accountants when it comes to capital structures, capital expenses, the optimal capital gearing ratio, working capital, budget, inventory management, and other issues.

Accounting compares the expenditures of various departments to identify which one is the most effective.

• Like doctors, engineers, lawyers, and architects, accountants (including CPAs) usually engage in professional practice or are employed by businesses, governmental agencies, non-profit organizations, and other groups (investortonight.com, 2018).

 

1.3 The Purpose of Accounting

 

Gathering and presenting financial information on a company's operations, finances, and cash flows is the aim of accounting. Accounting transactions that are either highly specialized transactions known as journal entries or more generic company transactions like invoices are recorded in accounting records to accumulate this data (Accounting tools, 2022).

1.4 Accounting's Importance

1.4.1 Records all business interactions

With comprehensive, consistent, and accurate data, it enables customers to assess a company's progress over time. With the use of current records, users can compare recent financial data to earlier data.

 

1.4.2 It makes management decision-making easier

The individuals who organize, coordinate, and govern the organization are known as internal users. The management team must use accounting while making important business choices. Examples of corporate decisions made with internal resources in control include deciding to pursue geographic expansion or improving operational performance.

 

1.4.3

results transmission

For businesses to acquire the confidence of external customers like creditors, lenders, and investors, accounting data must be accurate and timely. When approving a loan, lenders must take the firm's risk into account.

 

 

1.4.4 fulfils legal obligations

By employing adequate accounting procedures, businesses may guarantee the accurate reporting of their financial assets and obligations. Taxing authorities examine standardized accounting financial statements to assess the stated sales and net income of a company. The accounting system assists in making sure that businesses record their financial data in a legitimate and accurate manner (Accounting verse, 2022).