Function of Accounting

HideShow resource information
View mindmap
  • Function of Accounting
    • Financial Accounting
      • keep financial records and prepare financial statements.
      • All business organisations, regardless of their size and type, are legally required to do so.
      • the use of information from withinthe financial records to prepare financial statements.
      • Keeping Fianancial Records (bookkeeping)
        • The basic requirements of a bookkeeping system are that it is effective, efficient and secure.
        • Transactions need to be processed with speed and accuracy
        • The procedures used and controls in place must ensure that opportunities to commit acts of fraud by those operating the system are minimised
        • Data contained within the system (much of which is confidential) is kept undersafe and secure conditions.
        • The owner(s) of the business themselves act as the bookkeeper, tend to use a bookkeeping system known as the single entry system. This system usuallyconsists of a simple cash book or spreadsheet where the receipts and payments of the business are recorded and analysed. Such systems are easy to operate and meet the requirements of the majority of small businesses.
        • Medium sized or large business organisations tend to use the double entry system. Certainly a business organisation with a high volume of transactions to process would need to operate such a system
        • Nowadays, we find the majority of bookkeeping systems are double entry computer based systems. Software packages such as Sage are extremely popular as with appropriate training, are fairly easy to operate.
        • Information provided by a bookkeeping system will include:
          • The claim of the owner(s) on the assets of the business (the capitalclaim of a sole trader or partners, or the equity claim of theshareholders of a company).
          • The nature and value of the assets of the business (what it owns, whatit is owed and the extent of its liquid funds i.e. its cash in hand or in abank account).
          • The amounts owed by a business to organisations or individuals otherthan its owner (the liabilities of the business).
          • The income earned by the business from trading or non-trading activities.
          • The costs and expenses incurred in the running and administration ofthe business.
        • Source Data
          • Sales invoices and credit notes issued to credit based customers.
          • Sales invoices and credit notes received from credit based suppliers(known as purchase invoices).
          • Receipts issued to cash based customers, or till roll readings showinga summary of cash sales.
          • Receipts collected to support cash based purchases.
          • ‘Bills’ received from utility companies.
          • Vouchers - such as a petty cash voucher.
          • Statements of Account – particularly the bank statement.
          • Cheque-book stubs.
          • A register of payments by standing order or direct debit.
          • The payroll or wages book.
          • The journal.
      • Confidentiality and security of information
        • The financial affairs of the business organisation should not be discussed withthose outside the organisation and should never be discussed in a publicplace where the conversation could be overheard.
        • Information of a confidential nature should be circulated only to authorisedindividuals
        • If working in private practice it is essential that client confidentiality berespected. A client’s business should never be discussed with other clients ora client’s family and friends without the express permission of the clientthemselves.
        • Financial information should be kept secure and yet needs to be filed within asystem that makes it easily accessible
        • Various filing systems are used in practice as the basis of keeping and storing information, these include:
          • Filing in numerical order – many paper based documents
          • keeping payroll records or personnel files. Customer andsupplier files are also usually kept in alphabetical order.
          • till roll readings and statements ofaccount issued to customers or received from suppliers are often filedin date order. Bank statements also tend to be filed in this way.
          • order ofgeographical location, according to the country where the customer orsupplier is located.
        • The Data Protection Act requires that personal data be kept under safe andsecure conditions; this would require the use of firewalls to protect theinformation from contamination or hackers.
      • Preparing financial statements
        • Accounting is the use of financial information from within the bookkeepingsystem for the purpose of preparing financial statements
        • The financial statements prepared from the financial records include:
          • The Balance Sheet
        • The Profit and Loss Account
    • Management Accounting
      • The preparation of management accounts is not a legal requirement
      • The process of internal accounting
      • The purpose ofmanagement accounting is to provide financial information for the purpose of planning and controlling thebusiness.
  • The purpose ofmanagement accounting is to provide financial information for the purpose of planning and controlling thebusiness.

Comments

No comments have yet been made

Similar Accounting resources:

See all Accounting resources »See all resources »