Principle of Accounts Notes
Topic: Introduction to Principles of Accounts
What is accounting?
Accounting is the process of identifying, recording, summarizing and communicating financial information to interested parties so that inform judgments and decisions can be made.
The Purpose of Accounting:
1) It provides reports on the financial position of an organization and the profitability of its operations. 2) It helps management to make effective and efficient decisions in terms of control and directing of business activities. 3) It provides a way to measure the effectiveness and performance of an organization over a particular period of time. 4) It provides economic information to interested parties so they can make informed and reliable decisions. 5) It provides a record of assets owned, accounts owed to others and monies invested into an organization and so on.
The Users of Accounting Information:
The users of accounting information can be classified under to broad headings. They are; 1) Internal Users
2) External Users
Internal Users – are parties within the organization who are interested in the accounting information.
Some examples of internal users and why they will need the information
a) The manager of the business – needs accounting information to assist them in decision-making, controlling and directing the day-to-day course of the business that help them put together policies and plans for the business’s future.
b) Owners of the business - needs accounting information to see whether or not the business is profitable and also to have an idea on what the financial resources of the business are.
c) Employees – use accounting information to determine a company’s profitability and profit sharing (bonus).
External users – are parties outside the organization who are interested in a company’s accounting information.
Some examples of External users and their need the...
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