Basic Accounting Theory

Question 1:

Many students of business studies wonder why they need to study accounting. They are not exactly sure how the study of accounting could help them in the future. Briefly explain how knowledge of basic accounting can help individuals, no matter which career they choose.

What is accounting? “Accounting can be defined as the process of identifying, recording and communicating economic information of an entity to the users in order to provide them an appropriate information system which will assist them in decision-making,” (Carey, 2010).   From the history of accounting shows that accounting had initiated in order for people to record daily business transactions, to ensure whether they were financially successful and finally to recognise “how much they owned and how much they owed,” (Sangster & Wood, 2005).

The study of accounting is not merely for the large organisations, however it is being used by everyone in our daily lives when we plan something to do with our money especially when deciding how much to spend and how much to save. In the organisations, it is not only involved in recording what has been received and paid out but it is also necessary to record what goods has been purchased and sold during a certain period of time. After recording the data, it has to be further being classified and summarised to show whether the business is performing well such as how much profit or loss has been made (Sangster & Wood, 2005). Then eventually, it has to convey the information or results to the owners of the company or other internal and external users to provide essential information about the past performance, present situation and future expectations of the organisation which can support them in making appropriate decisions. In order to provide useful information, the data involved should be relevant, reliable, understandable and comparable from the previous transactions recorded. This information is usually shown through accounting... [continues]

Read full essay