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Accounting and its Functions

Accounting and its Functions

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Published by ClassOf1.com
Accounting provides information for a wide variety of different users and purposes, and its practices can only be properly understood and assessed in relation to the economic and social environment in which they are applied.
Accounting provides information for a wide variety of different users and purposes, and its practices can only be properly understood and assessed in relation to the economic and social environment in which they are applied.

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Categories:Types, School Work
Published by: ClassOf1.com on Feb 21, 2013
Copyright:Attribution Non-commercial

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02/21/2013

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 Accounting
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Sub: Accounting Topic: Aspects of accounting
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Accounting and its Functions
Accounting provides information for a wide variety of different users and purposes, and its practicescan only be properly understood and assessed in relation to the economic and social environment inwhich they are applied.
Therefore there are four aspects to this subject:
1. Techniques for recording, calculation, classification and reporting of accounting information.2. The legal and institutional background associated with accounting information.3. The economic and administrative problems which the information is required to solve.The study of accounting is divided into two parts according to types of users of the accountinginformation. Financial accounting is primarily concerned with the needs of users outside the businessor other organisation. Therefore it relates to the external control and management of resources forexample, by banks making loan. A key part of financial accounting is reporting the performance andposition of the business to these external users, via the financial statements. The form and content of financial statements is usually highly regulated. In contrast, Management accounting is concernedwith the needs of users inside the business. Therefore it relates to the internal control andmanagement of resources for example, by the directors, management or employees of a company.Management accounting statements may be more detailed than those prepared for external users,and do not normally need to meet any legal requirements.Accounting is generally viewed as serving the following functions:
 
 
Sub: Accounting Topic: Aspects of accounting
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Recording:
accounting systems supply a means of recording data so as to enable the production of reports or for use in calculations. Like for the preparation of financial statements.
Classification:
accounting systems assist in categorising data so as to enable the production of reports or for use in calculations. Like, identifying whether an item is an asset or an expense, orwhich costs should be included in inventory.
Measurement:
accounting systems quantify data so as to enable the production of reports or for usein calculations. Like, determining how much profit a business has earned in a year.
Stewardship:
accounting systems provide information which enables owners to determine howfunds entrusted to managers have been used by them, and to what ends.
Information for decisions:
accounting systems provide information which enables users to makedecisions about the future. Like, to assist investors or managers in deciding how to allocate theirlimited resources.
Monitoring and control:
accounting systems provide information which enables management tomonitor performance, and take corrective action if necessary.
Performance evaluation and compensation:
accounting systems provide information on theperformance of different individuals and parts of the business in order to determine how muchmanagers and employees should be rewarded, according to the terms of their contracts.

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