Accounting as the Important Function of Every Business Organisation Essay

Accounting as the Important Function of Every Business Organisation (Halfords company) - Essay Example Accounting’s main or primary purpose is to identify the activities of the business organisation, recording and measuring the transactions of the business and communicating the financial information to all the interested persons like the shareholders, investors, creditors, management, employees, government etc. The financial information generated from accounting in form of financial statements helps managerial decision making and other important investment decisions. Accounting is an important function of every business organisation. Accounting has various purposes and objectives. Among the various purposes, the main purpose of accounting is to record the transaction of the business enterprise in a systematic manner and to provide information about the financial position of the business enterprise to all its stakeholders. Accounting’s main or primary purpose is to identify the activities of the business organisation, recording and measuring the transactions of the busine ss and communicating the financial information to all the interested persons like the shareholders, investors, creditors, management, employees, government etc. The financial information generated from accounting in form of financial statements helps managerial decision making and other important investment decisions.... Figure 1: Performa of a purchase account in a ledger (Source: National Institute of Open Schooling, n.d, p.125) Thus the ledger is the collection of accounts maintained by the company. The ledger provides balance of the particular account on a particular date like the amount of sales on a particular date can be found from the sales account. Apart from these main books the company can also maintain sales day book and purchase day book to record its credit sales and credit purchase respectively. 2 (b) Every business organisation usually had a number of business transactions. Similarly Halfords would also have a number of transactions during a particular accounting period. The most common transactions that the company would certainly have during an accounting period are as follows:- Cash sales: Cash sales denote selling goods and services on cash. This means that the amount of goods sold or services rendered is immediately received by the company. This transaction is recorded by debitin g the cash or bank account and crediting the sales account. Cash purchase: Cash purchase signifies purchasing goods or services on cash. In cash purchase the amount for the goods purchased or services availed has to be paid immediately. This particular transaction is recorded in the books of accounts by crediting the cash or bank account and debiting the purchase account. Credit sales: Credit sales denote that the goods or services have been sold on credit. In credit sales the amount of goods sold or services rendered are not paid immediately but after a certain period of time (which is known as credit period). This particular transaction is recorded by debiting the debtor’s account (the person to whom the goods are sold) and crediting the