Definition and Purpose of Accounting - Paper Example

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Carnegie Mellon University
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Definition of terms. Recording, classifying, summarizing, analysis and interpretation and communicating.

Components of Accounting


Purpose of Accounting in an organization

Users of accounting Information in an organization




Any entity in existence appreciates accounting in one way or another. It is virtually impossible to avoid it day to day dealings. This is one of the reasons I was deeply attracted to this discipline. The job outlooks are also positive with a projected growth of 11% between 2014 and 2024.

Accounting can be broadly defined as the process of identifying, measuring and recording economic information. This is done to give the users of this information a basis for making informed judgment.

The American Institute of Certified Public Accountants (AICPA) represents an association of accountants. They have defined accounting as the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part, at least, of the financial character.

In these definitions, specific terms stand out. They include:

Recording. This refers to putting transaction either manually or electronically to the necessary records

Classifying. This refers to grouping of similar transactions and posting them to relevant ledger books

Summarizing. This is summing up all financial data from the records and obtaining their totals. This totals are thereafter used to extract trial balance.

Analysis and interpretation. Analysis signifies the methodical classification of data whereas interpretation involves drawing conclusions in a clear language.

Communication. This is the last aspect of the accounting process. It basically involves reporting financial performance to the use of accounting information in an organization

Accounting as a discipline and a field of practice has various components. I figured out that career wise, having accounting skills could have broad application owing to these components. The revenue generated cumulatively is around $ 128 Billion in 2016 (Ernst & Young 2016). They include:

Cost accounting; this is mainly concerned with the estimation of costs in advance and detailed analysis for the purpose of control.

Management accounting; this is basically accounting for the management. It involves furnishing useful data and information to the management to help them carry out their core functions such as planning, controlling and decision-making within the organization.

Taxation; this typically involves the determination of tax from business activities and the overall tax administration within the tax jurisdiction.

Auditing; this is a popular component involving the examination of financial records. The ultimate purpose is to ensure they portray and reflect the truth and fair view of the financial status of the organization for a specified period.

Financial Accounting; it is the original form of accounting. It entails the preparation of a set of financial statements from a set of records of organizational activities for a specified period.

Purpose of Accounting

As previously mentioned, accounting is practically inevitable and serves a crucial purpose in all organizations. 88% of businesses report to be satisfied with their accounting practices. My resolve to study it is outlined by its purpose in an organization. They include:

It keeps systematic records for all financial transactions. This forms a basis for future transactions.

It ascertains the results of operations of an entity. This typically means whether the organization has realized profit or loss.

It determines the financial position of the organization. Thus, the total assets and total liabilities of the organization are clearly spelt out for a particular period.

To facilitate rational decision making. All accounting information in the organization will be used to make rational decisions within the organization. The decisions could relate to production, finance, purchases or even sales.

Therefore, accounting has a crucial purpose in the outworking of the organizational activities. It can be said that they are part and parcel of achieving organizational objectives.

The basic users of accounting information are:

Investors. They are more concerned with financial performance and profit.

Lenders. They are greatly concerned with the liquidity position of the organization.

Trade Creditors. Of course they are concerned with credit worthiness

Shareholders. They are interested in the financial performance and the value of shares.

The list is not exhaustive as there are many other users of accounting information. It is my intention to pursue a career in this amazing field. The purpose it serves, as outlined above, gives me great career prospects in the field. My resolve is un-shaken and I intend to join the best colleges to study this discipline. I know it would be lucrative as only 40% of business owners feel that that they are conversant with accounting procedures. There is indeed a gap. Owing to the central position it occupies in any organization, I would be selective so that I get the best internship opportunity in a reputable organization

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