What Are The Basic Functions Of Accounting
The basic function of accounting is to provide information that will assist in decision making. Accounting has its own language and it serves as a means of communication to employees, investors, creditors and government departments who are interested in the company. Accounting is permanently assigned by the legislation, technology and economic conditions. It is part of the management system and used as a planning tool. It also monitors the activities of a company and is a means of establishing accountability for its performance.
It was about the time of The Renaissance that the principles that form the basis of the modern accounting system were developed, double entry bookkeeping. Financial statements made an appearance in the fifteenth century and the Industrial Revolution in the nineteenth century blew old accounting practices right out of the water.
Organizations and the structure of business ownership were overhauled according to the needs created by the changes in society. The size of organizations grew and with it the advent and growth of collective ownership. The function of accounting was no longer to protect the interests of the owner of a business but to provide financial reports to shareholders of a company and external users outside of the business. With the growth of these organizations came the evolution of the managerial role of accounting in the decision-making and planning processes necessary for the future development of companies.
In recent times, the most significant changes to affect accounting has been due to the advancements made in computer technology. This has enabled the production of more accurate information, saving lots of time and money and has been suitably dubbed the Information Age.
Today, one of the main functions of accounting would be to communicate financial information and business information to interested users both within and outside of the organization. The information is presented as graphs, tables and reports expressed in terms that these users can comprehend and that is in money terms. This information will assist the decision makers do their job.
The quantity of information is important but the quality of the information must be considered. The term Cost Benefit Analysis refers to the cost associated with the collection of information compared to the benefit to be gained from the information. Naturally it is economical when the benefits exceed the costs. Poor quality information can cloud business decisions and out of date information is of no use to anyone.
The accounting system relies on accurate processing of transactions to provide financial data that is converted into reliable and relevant financial information which is used by management to make decisions. There are many groups and individuals who have an interest in the financial reports of a business.
* Employees are concerned about their job security and bonuses.
* Trade Unions are concerned about improving wages and improving working conditions.
* The customers are concerned about the quality of the product.
* The general public may be concerned about environmental issues and overseas ownership.
* Creditors are concerned about whether to extend credit facilities to the business.
* Investors are concerned about how efficiently and profitably the business is operating.
* Government departments such as the Tax Office and the Bureau Of Statistics are interested in information on the business.
In the business world, accounting can provide the information that enables management to plan and then control the activities of the business and then enables the different interested groups to assess the performance of a company and establish accountability to the higher authority for the activities.Therefore the worker is accountable to the management, which in turn is accountable to organizations and the owners who are accountable to the government and the general public.
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