Accounting and business functions

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Accounting starts from timely recording of recurring transactions by the bottom level staffs and systems. Input data are collected from primary sources. They are fed into the accounting system (manual/computer based) for processing. Periodically, by middle management and top level executives, these data are (extracted and) manipulated to squeeze out information. Financial statements are one of those pieces of information, which is publicly available for review and remarks.  It is the responsibility of directors to prepare financial statements. It is one of the various functions within business.

Double entry bookkeeping system is widely practiced within businesses. In 1494 from Italy, it was Luca Pacioli, who codified double entry bookkeeping system. Double-entry bookkeeping is a system of bookkeeping which requires a corresponding and opposite entry of different account to a single transaction. Mere recording is not the end of accounting function. It is only the entry point to handle raw data. Estimation, analyzing, evaluating, and reporting are other parts of accounting function. Today accounting profession has grown to a multimillion-dollar industry. It is because accounting facilitates decision making related to all other functions.

The use of management and financial account facilitates business development by segregating fixed and variable cost, analyzing borrowing capacity and finding breakeven point. It also helps define sales price and allowable discount. Management accounting helps optimize production efficiency whereas financial accounting financial accounting helps evaluate overall performance of organisation/division with its benchmark. Analysis of performance of employees with budget and previous performance help define incentive and rewards. Forecast and projection of cash flow assists on formulating long-term financial strategies. Publicly available financial information is used to compare market share and price relations and understand the position of firm in market and industry.

Stakeholders demand accountability. Shareholders being owner of the company and directors' being agent, shareholders expect directors to practice fiduciary duty and report companies performance in AGM through financial statements. Banks and lenders/creditors rely on these information to retain confidence on recoverability of their investment. Buyers use this information to maintain their loyalty to the product. Government uses this information to analyse growth in tax and national income. Thus, stakeholders customize available financial statement and use to address their needs.