Concept of Accounting
Accounting is the process of identifying, recording, measuring and communicating financial information which allows balanced judgement and sound financial management decisions. Account systems have been used throughout history as long as there was need to make financial decisions.
Accounting:
-Identifies, records, measures and communicates information on the finances of a business.
-Focuses or communicates information about entities in monetary terms.
-Provides general financial information which may be used for specific functions by relevant entities in need of financial information.
-Has the intended effect of assisting the organization in reaching its objectives.
-Illuminates what is being measured, as well as providing summarized information for general management decision making.
Users of accounting information
Internal users
-Owners of the business – to assess the results of their investment in the business.
-Managers – to plan, control, analyse, and evaluate activities and performance in order to strengthen policies.
-Employees – to look at the stability of the business, job security and adequacy of salary.
External users
-Government – to ensure that legal conformity and tax obligations are met by businesses; to assess impact of business activities on the economy.
-Competitors – to make performance comparisons and strengthen weak areas.
-Suppliers – to determine the credit history of potential customers before committing to supply.
-Customers – To provide after-sales support.