Purpose of accounting

• Recording transactions

  Keeping accurate and up to date records is vital for business. All money coming in(from sales) and money going out, such as expenses, must be recorded. Failure to do so may mean inaccurate figures and data, and more seriously, get them in trouble with the HMRC(Government tax department) if their tax payments are inaccurate.
• Management of business

  They help planning, monitoring and controlling of the businesses resources. This helps them make accurate decisions. Management of finance will allow the managers to budget properly, meet their liabilities on time (pay their bills) and gives them a clear picture of where the business is financially. It can also help them foresee any financial problems them may have in the future.
• Compliance Compliance

  means abiding by laws and regulations set out by the government. Financial reporting is a legal requirement of businesses and so they must ensure they are completing it, doing it on time and accurately. Failure to do so can bring charges or fines, and in some cases custodial sentences for individuals. Being compliant helps businesses protect themselves against fraud.
• Measuring performance

  Without records, the business wouldn’t be able to see how it is performing. By measuring its sales and profits over time it can determine its level of success. Key indicators of performance include:

  • Gross profit

  • Net profit

  • Value owed to the business

  • Value owed by the business
• Control Accounting

  will help the managers control the flow of money in and out of the business. By tracking what is owed (trade receivables)and what they owe (trade payables), the managers can ensure it meets its day to day expenditure. Failure to do this is the most common reason businesses run intotrouble.