Accounting

The language of business

Unit 1

Often referred to as the language of business; accounting is more a means of keeping score in a common format.

Accounting involves recording business transactions in financial terms and reporting that information to business owners and other interested parties.

Business transactions such as:

  • Making a sale
  • Buying goods and services
  • Paying Staff
  • Borrowing money
  • Paying loans back
  • Investing in assets (machinery, buildings, vehicles etc)
  • Paying tax

are described in accounting for the impact that they have and evaluated to a common base known as money.

By common agreement in the UK we accept that the money base is £ sterling (it could be any other unit of measure if we all agreed and recognised it).

The business score in accounting is usually presented in three documents, each in a particular format and showing financial information of different significance:

Unit-01

Accounts are widely used by many groups and for many reasons; you may be able to add to these lists.

Users of accounts

  • Owners / Shareholders – to value their investments
  • Managers – assist in control and decision making
  • HM Revenue & Customs – agreeing tax liability
  • HM Revenue & Customs – agreeing VAT liability
  • Central statistical office – official statistics
  • Investors – to oversee and/or value their investments
  • Banks – to oversee and/or value their investments and loans
  • Customers – can I rely on my supplier?
  • Suppliers – will I be paid?
  • Auditors – the figures to be audited
  • General public / Journalists – public interest issues
  • Trades Unions – negotiations / industry data
  • Employees – information on what is happening to the business they work for?
  • Potential employees – safe to work for?
  • Pension funds / Fund managers – for potential investment
  • Lobby Groups – to review and further their issues
  • Authors of books on the subject – for materials and examples

Uses of accounts

  • Showing the financial situation of the entity
  • Demonstration of compliance to the law
  • Reporting performance
  • Managing performance
  • Valuing an entity
  • Demonstrating resources available
  • Demonstrating capacity to do things
  • Comparisons and benchmarking
  • Support for raising finance
  • Demonstration of probity
  • Supporting tax computations
  • Keeping investors (including banks) and potential investors informed


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