Accounting Functions
In a business environment, accounting is an invaluable tool for evaluating the financial performance of the company, its operations and its employees. It helps in making decisions about allocating resources and other activities carried out in the organization. Accounting also helps in understanding how income is generated in the company and how it is spent.
Accounting functions can be seen in two broad categories: the recording of financial transactions and the preparation of the financial statements which contain the summary of the financial activity and the determination of financial position of the business.
The primary purpose of the recording of financial transactions is to keep track of all activities related to the financial matters in the company. This is done by creating a chronological log of events, such as purchase and sales, payments, and investments. This log is then used as the basis for other activities like preparing financial reports and conducting audit reviews. Without this record-keeping, it would be difficult to establish an accurate picture of the company’s financial position and performance.
The preparation of financial statements is the second major accounting function. It involves collecting and analyzing the data associated with transactions related to the financial activities of the business. This data is then used to create summary reports, known as financial statements, which provide information such as net income, total assets and liabilities, and other relevant financial information. The reports are necessary for evaluating the company’s financial performance and assessing its financial condition.
In addition to these two primary accounting functions, there are also other tasks related to accounting that need to be carried out. These include budgeting activities, such as the creation of budgets for upcoming years, and periodically reviewing the accuracy of the financial information reported by the company. There are also other functions related to tax compliance, such as filing taxes and other regulatory obligations, as well as additional tasks associated with the company’s insurance programs and other financial investments.
The accounting functions help businesses in the preparation and analysis of their financial information so that they can make informed decisions. It also helps them maximize profits and ensure compliance with applicable laws and regulations. Ultimately, it helps in making sure that the company’s accounting data is correctly reported and maintained so that it can be used as a reliable source of information for both internal and external stakeholders.
