What is The Firsthand Purpose of Accounting?
Posted by: Vaibhav Devaansh | Posted on: February 22nd, 2016
Profitability is the bottom line for any business. Accounting helps in assessing whether the business is doing profits or not. It keeps financial statement of company’s revenue and expenses up-to date to be assessed on real time basis. The accounting department is responsible for accounting services and financial backing for the organization it belongs to. This department records accounts payable and receivable, inventory, payroll, fixed assets and all other financial elements. The accountant’s assess the records of each department to regulate the financial position of the business’s and if any changes are necessary to run the organization cost effectively.
Five main pillars (Financial statements) used for preparing accounting information:
- Income statement
- Balance sheet
- Statement of cash flows
- Statement of retained earnings
- Disclosures that accompany the financial statements
Financial statements are assembled under certain sets of rules, fairly known as accounting framework. These statements are made under certain set rules by GAAP (Generally Accepted Accounting Principles) & IFRS (International Financial Reporting Standards). Not necessary that the results are accurate all the time, it may vary given the framework you use, and the framework tends to differ as per the needs of the recipient of the financial statements. Thus, a European investor might want to see financial statements based on IFRS, while an American investor might want to see statements that comply with GAAP.
The accountant may generate additional reports for special purposes, such as determining the profit on sale of a product, or the revenues generated from a particular sales region. These are usually considered to be managerial reports, rather than the financial reports issued to outsiders.
Thus, the purpose of accounting revolves around the collection and subsequent reporting of financial information.