Difference between revisions of "Accounts"

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Revision as of 07:04, 8 February 2011

Overview

It is not easy to provide a concise definition of accounting since the world has a broad application within businesses and applications.

The Accounting Association define accounting as follows:

"the process of identifying, measuring and communicating economic information to permit 
informed judgements and decisions by users of the information".

This definition is a good place to start. Let's look at the key words in the above definition:

• It suggests that accounting is about providing information to others. Accounting information is economic information - it relates to the financial or economic activities of the business or organisation.
• Accounting information needs to be identified and measured. This is done by way of a "set of accounts", based on a system of accounting known as double-entry bookkeeping. The accounting system identifies and records "accounting transactions".
• The "measurement" of accounting information is not a straight-forward process. it involves making judgements about the value of assets owned by a business or liabilities owed by a business. it is also about accurately measuring how much profit or loss has been made by a business in a particular period. As we will see, the measurement of accounting information often requires subjective judgement to come to a conclusion.
• The definition identifies the need for accounting information to be communicated. The way in which this communication is achieved may vary. There are several forms of accounting communication (e.g. annual report and accounts, management accounting reports) each of which serve a slightly different purpose. The communication need is about understanding who needs the accounting information, and what they need to know.

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Financial Statements

Accounting information is communicated using "financial statements".

What is the purpose of financial statements?

There are two main purposes of financial statements:

1. To report on the financial position of an entity (e.g. a business, an organisation).
2. To show how the entity has performed (financially) over a particular period of time (an "accounting period").

The most common measurement of "performance" is profit. It is important to understand that financial statements can be historical, or relate to the future.

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Accountability

Accounting is about Accountibility

Most organisations are externally accountable in some way for their actions and activities. They will produce reports on their activities that will reflect their objectives and the people to whom they are accountable.

See also Accounting Concepts

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Using Accounts

From Main Screen - Select Accounts Tab