Purpose Of Accounting Essay

“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

Managing a business includes planning, organising and focusing on achieving a goal, for example expansion of the business.

Measure financial performance

Measuring the financial performance in a business is important as it will tell you where your business stands in terms of money and its mainly the level of performance during a specific period of time which decides whether you made losses or profits, for example it can tell you the value added to your business or return on assets and return on investment. It will also help the business owners in making decisions and come up with strategies to make their business suffer less losses and gain more profits.

P2 - Explain the difference between capital and revenue items of expenditure and income.

Capital