Unit 5 p1

Topics: Generally Accepted Accounting Principles, Economics, Cost Pages: 2 (669 words) Published: June 23, 2014

The Purpose of Accounting

Purpose of accounting –
Accounting includes recording of financial transitions, the main purpose of accounting is to gather financial information about performance and cash flows of a business. These transitions are gathered so that financial information can be gathered from it, the information that is used is to decide how to manage the business in the right manner. Record transitions accurately –

Keeping transitions is always important to keep the business running effectively, businesses must make sure that they keep all the transactions whether they are regarding money coming into the business or money going out of the business. However if the records are not kept this could lead to incoming and out coming payments being missed and also even missing bill payments. If businesses do not record everything this could cost them as the amount of tax they will have to pay will be inexact. Here is an example of a business transition which is inaccurate -

1. The first mistake on this invoice is the net price, the consequence of this mistake is that the net price will have an increase in it. 2. The second mistake of this invoice is the VAT, the consequence of this type of mistake is that the customer is being charged an extra £3 in the form of VAT. 3. The third mistake on this invoice is the unit price for the set of curtains, the consequence of this mistake is that the customer will be charged £10 extra for the set of curtains. 4. The fourth mistake on this invoice is the total, the customer is getting charged an extra £13. Monitoring and controlling accounting records –

Records should be updated on a regular basis so that the businesses can always asses the performance. The types of activity that needs to be recorded includes sales, expenditure and also income. When doing this businesses can find out what there expenditure are compared to the income, the business can use this information to find...
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