Sadia Hussain Unit 5
P1 - The purpose of accounting
What is accounting?
‘’Accounting is the recording of financial transactions along with storing, sorting, retrieving,
summarizing, and presenting the results in various reports and analyses. Accounting is also a field of
study and profession dedicated to carrying out those tasks.’’
Accounting is the skills or practise of monitoring accounts and preparing reports to aid the financial
control and management of the business. Every business should carry out accounting, whether it is a
large business or small. Accounting allows forecasting, budget and overall control of the business
better. The business needs to carry out accounting on a daily basis, so they are able to spot/identify
the problem sooner than later, this helps to stop the problem before it becomes a much major issue
for the business. The financial statements produced by a business accounting department aim to
show clearly the profit or loss, which the company makes and the overall financial position of the
business.
Businesses are required to record accounting for many different reasons, first is to identify the
information of the income and expenses so both of them balance and that the business is making a
profit. Recording accounting allows the business to produce financial statements faster and more
efficiently because all the information that they need is recorded. It is also more financially secure to
record business accounting, so there is not any fraud happening and that the customers are paying
the full amount for their purchases.
The accounting sequence
‘’The sequence of steps in the accounting process provides a foundation for consistency and accuracy,
both of which are vital for calculating and presenting effective reports on the financial health of a
company.’’ The accounting sequence involves a lot of steps. First is recording the accounting data,
the second is classifying data such as making sure all the information is accurate and that there are
no mistakes as this can create issues for the business. The third step is summarising the data such as
posting into the ledgers, and then the last step is communicating the information, for instance to the
owner or management so they are able to analyse the data and performance of the business and
make changes if necessary. The business cannot do one step without the other; each stage is
dependent on one another.
Recording transaction
One of the purposes of accounting is to record transactions. Businesses have to record all the
transactions they make such as sales and purchases, in order to keep the records stored safely and
to make sure that there is a good balance between the income and expenditure to make ensure that
the business is not making a loss. For example, by recording all the sales that are made by the
customers will help Mr Dominek to remember to collect the payments. Recording all the income and
expenditure is beneficial for businesses as they are able to identify how much money is going out
and see if they are making a loss or profit and how much, from knowing these figures the business
will be able to make changes to improve the overall finance of the business. By recording the
transactions of the purchases, Mr Dominek will remember to pay the suppliers and recording how
much is owed to the suppliers will also help him to remember to pay the correct amount each time.
If Mr Dominek forgets to pay his suppliers or bills, the business may end up in a lot of debt and may
struggle to keep on running.
If Mr Dominek records all the transactions he makes, he will identify how much stock he had
purchased and will know if anything is missing or stolen. Accurate records are essential for sales and
1
P1 - The purpose of accounting
What is accounting?
‘’Accounting is the recording of financial transactions along with storing, sorting, retrieving,
summarizing, and presenting the results in various reports and analyses. Accounting is also a field of
study and profession dedicated to carrying out those tasks.’’
Accounting is the skills or practise of monitoring accounts and preparing reports to aid the financial
control and management of the business. Every business should carry out accounting, whether it is a
large business or small. Accounting allows forecasting, budget and overall control of the business
better. The business needs to carry out accounting on a daily basis, so they are able to spot/identify
the problem sooner than later, this helps to stop the problem before it becomes a much major issue
for the business. The financial statements produced by a business accounting department aim to
show clearly the profit or loss, which the company makes and the overall financial position of the
business.
Businesses are required to record accounting for many different reasons, first is to identify the
information of the income and expenses so both of them balance and that the business is making a
profit. Recording accounting allows the business to produce financial statements faster and more
efficiently because all the information that they need is recorded. It is also more financially secure to
record business accounting, so there is not any fraud happening and that the customers are paying
the full amount for their purchases.
The accounting sequence
‘’The sequence of steps in the accounting process provides a foundation for consistency and accuracy,
both of which are vital for calculating and presenting effective reports on the financial health of a
company.’’ The accounting sequence involves a lot of steps. First is recording the accounting data,
the second is classifying data such as making sure all the information is accurate and that there are
no mistakes as this can create issues for the business. The third step is summarising the data such as
posting into the ledgers, and then the last step is communicating the information, for instance to the
owner or management so they are able to analyse the data and performance of the business and
make changes if necessary. The business cannot do one step without the other; each stage is
dependent on one another.
Recording transaction
One of the purposes of accounting is to record transactions. Businesses have to record all the
transactions they make such as sales and purchases, in order to keep the records stored safely and
to make sure that there is a good balance between the income and expenditure to make ensure that
the business is not making a loss. For example, by recording all the sales that are made by the
customers will help Mr Dominek to remember to collect the payments. Recording all the income and
expenditure is beneficial for businesses as they are able to identify how much money is going out
and see if they are making a loss or profit and how much, from knowing these figures the business
will be able to make changes to improve the overall finance of the business. By recording the
transactions of the purchases, Mr Dominek will remember to pay the suppliers and recording how
much is owed to the suppliers will also help him to remember to pay the correct amount each time.
If Mr Dominek forgets to pay his suppliers or bills, the business may end up in a lot of debt and may
struggle to keep on running.
If Mr Dominek records all the transactions he makes, he will identify how much stock he had
purchased and will know if anything is missing or stolen. Accurate records are essential for sales and
1
