The role and importance of the accounting function

• Accounting is the organisational function that is primarily concerned with:
  1. devising methods for recording transactions, and actually recording those transactions
  2. keeping financial records,
  3. performing internal audits,
  4. reporting and analyzing financial information to the management,
  5. and advising on taxation matters
• It is defined as a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information
• Accounting can be historical in its outlook thus revealing:
  1. The profit or loss the organisation made in a given period
  2. The value and nature of a firm’s assets
  3. The liabilities
  4. The Owners equity and changes in said equity during the year
  5. Cash flow changes during  given period
• Accounting can also be used to create plans known as budgets
• These will help give guidance to the organisation
• Providing a historical and future perspective to the organisation aids the control function
• The business will be able to use techniques such as standard costing and variance analysis to guide it’s actions
• The accounting function also provides information about:
  1. resources available to a firm,
  2. the means employed to finance those resources, and
  3. the results achieved through their use
• This allows the business to conduct such activities as capital budgeting
• Allowing the business to choose the best investments that will maximums the value and equity of the owners of the business
• There are three major branches of accounting:
• Financial Accounting
  1. -furnishes information to individuals and groups both inside and outside the organization to help them assess the firm’s financial performance
  2. These financial reports including the income statement, the balance sheet, and the statement of cash flows summarize a company’s past performance and evaluate its financial health
• Management
  1. plays a key role in helping managers carry out their responsibilities
  2. Reports are tailored to the needs of individual managers, and the purpose of such reports is to supply relevant, accurate, timely information in a format that will aid managers in making decisions.
  3. In preparing, analyzing, and communicating such information, accountants work with individuals from all the functional areas of the organization including human resources, operations, marketing, and finance
• Accounting helps management come up with plans and take corrective adjustments to ensure that the organisation stays on track to achieve set objectives
• It measures the pulse of the organisation and tries to predict its future financial health

To access more topics go to the O Level Business Notes