Purpose of Accounting

Purpose of Accounting

• Financial accounting is a system that records, analyzes, and communicates financial information to provide insights into a business's current operations and financial condition.
• The overall objective of accounting is to provide information for making economic decisions.

Users of Financial Information

• External users: individuals, agencies, and organizations outside the business with an interest in the business.
• Internal users: persons inside the organization involved in its day-to-day operations.

Types of Users

• Investors: need information on investment safety and profitability to decide on ownership changes.
• Trade and Loan Creditors: need information on business profitability and stability to decide on credit extension.
• Statutory Agencies: need information for tax assessment and compliance with government rules and regulations.
• Employees and Trade Unions: use financial information for employment decisions and negotiating contracts and benefits.
• Financial Analysts: evaluate business soundness for investment decisions and Stock Exchange purposes.
• Customers of Businesses: use financial information to evaluate their business relationships and make decisions on future business relationships.
• Managers of Businesses: use financial information for decision making, controlling, and directing the business, as well as formulating policies and plans for the future.

Purpose of Accounting

• The purpose of accounting is to provide financial information about the current operations and financial condition of a business to individuals, agencies, and organizations.
• Accounting helps businesses monitor their activities and report their performance.
• The overall objective of accounting is to provide information for making economic decisions.

Users of Financial Information

• External users: persons outside the business who have an interest in the business, but are not involved in its day-to-day operation.
• Internal users: persons inside the organization who are involved in its day-to-day operations.
• Main users of financial information include:
  • Investors: need information about the safety and profitability of their investment.
  • Trade and Loan Creditors: use financial information to decide whether to extend credit to the business.
  • Statutory Agencies: use financial information to evaluate tax returns and ensure compliance with government rules and regulations.
  • Employees and Trade Unions: use financial information to make employment decisions and negotiate contracts and benefits.
  • Financial Analysts: use financial information to evaluate the soundness of businesses for clients and stock exchange purposes.
  • Customers of Businesses: use financial information to evaluate their relationship with businesses and make decisions about future business relationships.
  • Managers of Businesses: use financial information for decision making, controlling, and directing the day-to-day running of the business.

Branches of Accounting

• Financial Accounting: provides information for external users.
• Management Accounting: provides information for internal decision making.

Accounting Associations

• American Institute of Certified Public Accountants (AICPA)
• Institute of Chartered Accountants of Jamaica (ICAJ)
• Association of Chartered Certified Accountants (ACCA)
• Institute of Internal Auditors (IIA)
• Institute of Management Accountants (IMA)

Accounting Qualifications

• Certified Internal Auditor (US): an internal auditor who has achieved professional recognition by passing the uniform examination offered by the IIA.
• Certified Management Accountant (US): an accountant who has passed an examination offered by the IMA.
• Certified Public Accountant (US)/Chartered Accountant (UK; Jamaica): a public accountant who has met certain educational and experience requirements and has passed an exam prepared by the AICPA or ACCA.

The Accounting Process

• The accounting process involves gathering financial information about a business and reporting this information to users.
• The six main steps of the accounting process are:
  • Analyzing
  • Recording
  • Classifying
  • Reporting
  • Interpreting
  • Communicating