1.

1 Introduction to accounting

tives
Objec

By the end of this unit you will be able to:

• explain the concept of accounting

• explain the purposes of accounting

• identify the main users of accounting information.

Concept and purposes of accounting

There is nothing new about keeping careful records of financial

information. Even thousands of years ago people wanted to be well

informed about what they received and spent , so that they could have

some idea about whether they were well o or not . Nowadays these

same questions apply to both individuals and organizations. In the case

of businesses, the owners need to know:

• whether they are making a profit, because this is the main reason for

engaging in business activity

• that they have enough money to pay all of their commitments on time

• that they are making the best use of the funds they have invested in

the business.

In the modern world, business activity can be on a ver y large scale and

ver y complex. Even a really simple form of business organization, for

example a market stall, can involve a great deal of financial activity,

including handling money, buying goods to sell, paying assistants, etc.

Accounting is about providing accurate and comprehensive financial

information to those involved in making decisions, so that businesses

Key terms

can sur vive, be successful and be run eiciently.

Bookkeeping: the

In order to provide this comprehensive financial information, it is

recording of financial

necessar y for the following to happen:

information, particularly

transactions, in a

All financial transactions need to be recorded in a systematic way, so

systematic way.

that the owner of a business, and other users, can be provided with the

information they need to make the right decisions. This record-keeping

Accounting: the

aspect of accounting is oen called bookkeeping

selecting, classifying and

summarizing of financial

data in ways that provide

From the bookkeeping records, which oen contain vast amounts of the owners of businesses

detail, it is important to select, classify and summarise information, so that

(and others) with useful

owners and other users can be given the appropriate information in the

information to help them

form of financial statements to help them manage the business eectively.

assess performance and

The preparation of financial statements and providing some interpretation

of what the statements reveal is oen called accounting plan future activities.