An introduction to accounting - Essay Example

Accounting may not be popular but it is a must for any organisation,be it in the manufacturing or service sector, whatever its size,whichever country it is based in and whether or not its aim is to maximise profits.Without accounting resources cannot be managed effectivelyIt is irrefutable that any business organization requires the use of accounting. In fact, the use of accounting dates back from the time a business organization is formed. A company cannot function efficiently without the use of a system which list down the financial transactions that it undertakes (Atrill and McClaney 2001).

In the simplest sense, accounting can be defined as the system which provides information about the financial situation of an organization.Since accounting is all about recording financial transactions, it is then a necessity for any organization which deals with money (Atrill and McClaney 2001). And looking at the global business situation right now, no business entity is ever existent without financial resources. Accounting provides a systematic and comprehensive way of recording a company's financial transactions.

For one, the accounting equation serves as the basis of the company's financial statements recognizing the principle of double-entry bookkeeping in accounting. The accounting equation is as follows: assets less liabilities = shareholders' equity. It can also be expanded as: assets less liabilities = shareholders' equity (revenue less expenses)(Keown et al 2005). . Accounting aids a business organization to gather three types of information namely operating, financial, and managerial (Atrill and McClaney 2002).

All companies are required to use accounting for operating purposes or for daily activities in order to record and determine the amount of salary owed to workers, track sales, and level of inventory. Secondly, financial information is also needed in order to attract shareholders and creditors. The company often needs to prove to these providers of financial aid that it is worthy of receiving resources. Thus, a company should record transactions and report them to these interested entities. Lastly, accounting is used for decision making.

Companies are interested to know how much inventory should be produced in a given month, whether to manufacture in-house or source from a supplier, whether to acquire a new equipment or not. It should be noted that the purposes and information provided by accounting is used by any business organization whether from the goods or service sector. As long as there is money involved, transactions are irrefutably recorded. The financial resources are tracked through accounting. For one, the most common goal of a company which is to make money can only be evaluated if financial transactions are constantly monitored and recorded systematically.

A business can only know whether it makes money or not when it employs a system which tracks its revenue and its expenses. However, it should also be stressed that accounting is also required even for not-for-profit business organizations. Non-government organizations like Red Cross and Youth for Christ employ accounting to record their expenses and budget