Accounting is the practice of “…maintaining, auditing and processing
financial information…” (http://en.wikipedia.org/wiki/Accounting) for
the purpose of a company, persons or organisation. There are some
fundamental parts of accounting which are; “Identifying, measuring and
communicating” (Black, 2000). You need to identify the important
financial sections of a company, person or organisation which will
include the companies assets, liabilities, capital, income and of
course expenditure. You will also need to measure “… monetary values
of the key financial components in a way which represents a true and
fair view of the organisation” (Black, 2000). Finally there is the
communication side of accounting, it is vital that a company, person
or organisation can communicate all of the financial information
gathered so in turn users, whether they are internal or external,
will be able to receive the correct financial information and be able
follow it. There are two forms of accounting they are Financial
Accounting and Management Accounting. Financial Accounting is
concerned with the preparation of financial accounts for the benefit
of people outside a company or organisation. Management Accounting is
financial information used by managers within a company or
organisation to make financial decisions based on the information that
the accounts provide.
There are many people who would be interested in company’s accounts,
they are divided up into two groups; External Users and Internal Users.
Within the External Users group are; Investors, lenders, Suppliers,
Customers, prospective buyers, other businesses and the Government.
Included in the Internal Users group are the Owners, Shareholders, the
Board of Directors and Employees. These individuals each have reasons
why they would be interested in the accounts of a company. Investors
for example would not want to put capital into a company if that
company was in financial trouble, there would be a risk of the
investors losing some if not all of the capital they had invested.
Lenders would want to make sure that the company is in a strong
financial position to repay on time any monies lent to them.
Similarly for suppliers they would like to be assured that any
supplies ordered would be paid for once delivered. Customers on the
other hand would want to make sure that any orders made between
themselves and the company would be delivered. Prospective buyers of
a company would want to check out the financial state of a company
before considering making a bid for the company. The Government uses
the information gathered within a company’s accounts to asses the
amount of tax a company would have to pay and the information is also
used to assemble National Economic Statistics and of course a rival
business would be interested in the published accounts of a particular
company, person or organisation as they would want to find out how
well the competition is doing and whether it would be worth trying...