Essay on The Purpose Of Accounting For An Organization

Essay on The Purpose Of Accounting For An Organization

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“P1 – describe the purpose of accounting for an organisation.”
In this task I am going to describe the purpose of accounting, why is it compulsory for businesses and organisations to keep a record of all accounts such as “profit/loss,” the amount of cash spent on “stock”, “bills”, “wages” and numerous other things related to the business that money is spent on . Accounting also covers the cash situation, sales levels, stock levels and credit given to customers as well as their bad debts.
“Record Transactions”
For a business or organisation, keeping the business records accurate and updated is essential, necessary for the business to run smooth and make as much profit as possible. The owner or one of the staff members who has worked for the organisation for a long period of time must ensure all of the money coming in such as sales and money going out of the business such as expenses are recorded. If the business does not record anything, it may struggle and cause pandemonium and maybe find itself following payments or even forget to pay bills or find itself in trouble with HMRC. If the book keeper does not record its transaction correctly, it cannot report its financial performance and therefore tax payment may be harder.
Monitoring the business
In accounting you need to be aware of where you and your business stand with your cash and all the incoming and outgoing money in the business. Records will be updated on a regular or daily basis so that it provides a good indication of how the business or the organisation is performing in terms of sales, receiving payments, paying expenses and so on. The owner of the business or the organisation would know if money going out is on the increase while the business’ sales is dropping off....


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...her internally between employees or externally with suppliers and customers such as postage, printing, photocopying and stationary. Telephone costs are also administrative costs due to paying for line rental and the call charges.
The difference between capital income and revenue income is that capital income is money which is generated from assets like selling land and buildings and getting profit whereas revenue income is sales of goods by the business and also the service provided by the business.
The difference between capital expenditure and revenue expenditure is that capital expenditure is money spent on valuable items like buildings, cars and computers whereas revenue expenditure is day to day expenses for example wages, bills and electricity. The capital expenditure goes into the balance sheet and revenue expenditure goes into the profit and loss accounts.

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