C1 The purpose of accounting Flashcards
What is the purpose of accounting ?
- Record transactions
- Monitor acitivity
- Control
- Management of the business
- Measurement of financial performance.
Why is it important to record transations ?
Keeping business records accurate and up to date is important for the smoth running of a business
The business must record all money coming into a business and all money going out
Recording transactions helps smooth running of a business , legal requirement and calculating tax liability accurately
What does the management of the business do and why is it important ?
It will allow managers to make more informed decisions and plan for the future.
It involves careful co-ordination of resources inolving staff , materials , stock and money
Managers must ensure there are sufficient funds to pay wages , order stock , pay bills etc
What is compliance and why is it important ?
Finanicial reporting is governed by laws and regulations and it is important that businesses comply with these
It will help protect against fraud
what is fraud ?
Fraud is when an individual acuquires company money for personal gain through illegal actions
What is the measurement of financial performance and why is it important ?
Businesses need to measure their performance to see how well they are doing and so that they can take actions to imprve its performace
Measuring of financial performance
- To measure the amount of profit or loss
- To Measure the amount owned by debtors and owed to creditors
- To measure the value of the business
What is control and why is it important for accounting ?
Accounting will control the flow of money coming into and out of the business by maintaining accurate records and monitoring performance
This will assist with the prevention of frauds as it can spot any unusaul activity,
It will also track the amount of money the business is owed and will track the amount of money the business owes
