Purpose of Accounting

Role of Accounting in Business

Record Financial Transactions: Accounting systems record, classify, and summarize financial transactions. Recorded transactions include sales, purchases, income, and payments by an individual or organisation.
Aid in Decision Making: By producing financial reports, accounting systems help stakeholders including management, creditors and investors make business decisions.
Ensures Statutory Compliance: Accounting helps a business to follow and comply with the statutory regulations by providing necessary financial information.

Objectives of Accounting

Communicates Financial Information: Accounting serves the purpose of communicating financial information about the business to its stakeholders.
Measures Profitability: It helps measure the profitability of business activities over time.
Assess Financial Health: Accounting aids in assessing the financial health of an organization indicating its earnings, profits against loss, liabilities, and assets.

Importance of Accounting Standards

Uniform Reporting: Accounting standards ensure the uniformity of financial statements and reports across different companies.
Comparability: Standards allow for comparison between industries and sectors, making it easier for stakeholders to make informed decisions.
Transparency and Accountability: They also help in bringing transparency and accountability in business operations.

Understanding Typical Accounting Reports

Profit & Loss Account: It provides a summary of a company’s revenues, costs, and expenses incurred during a specific period of time, typically a fiscal quarter or year.
Balance Sheet: Also known as Statements of Financial Position, Balance Sheets provide a snapshot of a company’s financial position at a specific point in time, detailing assets, liabilities, and equity.
Cash Flow Statement: Shows how changes in balance sheet accounts and income affect a company’s cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

Remember, Accounting serves as both a tool of management and a means of conveying financial information. It provides the financial information needed to make sound business decisions.