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Purpose of Accounting

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Purpose of Accounting

In the modern day it is important for any business to have a good knowledge of different accounting process and help to understand how the business operates. Anyone from potential investors to stakeholders could look to see how well the business is going. We all know that any kind of idea could fail if their owners doesn't very carefully manage the business accounts. Purpose of accounting include recording different financial transaction ,planned or actual and with this figure producing final information.There are a plenty of different reason why accounting is so important to the progres of the business Record transaction-It is very important for any business,all the money coming in or out of business has to be very carefully recorded by the owners or bookkeeper.If the business is fail to keep correct records could lead the business to trouble with different institution or HMRC including to pay the builds or to pay correct amount of tax. Monitor activity- The record has to be updated (often dayly )so in this way could give a good indication how the business is going in all different conditions (sales,receiving payment, paying expenses).This way the owners will have a better idea,if the sales or expenses doing up or down.Another important part of monitoring of activity is the bank balance of the business to assure that business can meet all day to day operation cost. Control-If The recording of transaction and monitoring of activity are handle properly then the business suppose to have a good level of control over the business. Management of the business- A manager is liable for the planning monitoring and control of resources for which they are accountable,and when they has a good knowledge of business accounting they will be able to make clear decisions and a good plans for the future.They also need to be sure is enough financial resource to keep operating (pay a wages and suppliers). Measurement of financial performance-We couldn’t know if the business owed a money or wos in debt to others,we couldn’t know also if the business making any profet or is in important indicators of financial performance are (gross profit,net profit,value owed to the busines ,value owed by the business).


Capital income:
This is a money which has been invested by owner or investor,and they are used used for setting up a new business or buying any kind of mid-long term equipment.Primary buying of stock can be made using capital income ,but for future any stock could be buying using the sale income.There are so many different sources of capital income and there are all available to a different type of business Sources of capital income:
>Sole trader-income from his own capital or any kind of personal bank loan.
>Partnership- All partners are liable for increasing capital income,if they have any loans they will be individually secure.
>Shares-Normally they are registered with companies house and shares are published.
>Loans-lent to the owners or business.
>Mortgage- large amount of money for a long period of time(repayment),and its insure with the premises. Revenue income:
This is the money generated from the daily operation (sales of service and and good) and depends on the different type of business.We have three general type of sources.
>Sales-cash or credit.
>Commission- from selling products or service as an agent. Capital Expenditure:
This is a money used to buying capital items,they are asset and belonging to the owners or the business.The asset could be fixed and intangible.
>Fixes asset it is a long term asset and show up on the balance sheet. that could be a land, buildings,vehicles, furniture any machinery or equipment
>Intangible asset include any goodwill,trademarks or patents. Revenue expenditure:
This is the money which business spent on the regular base, and show on the profit and loss account.That could be cost of :Premises,staff,purchase of stock,finance and administrative cost ,selling and distribution cost.

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