Introduction to accounting
Part II
As I have briefly introduced the
importance accounting in my first post we will continue this introductory debate
in this post too. We reached to the point in our first post that we used information
to make decisions. Basically information
is comprised of many things which nucleuses the truth, the thought and the
conception. It means if the information do not reflects the truth so the authenticity
grasps the foot prints of bad decisions.
Now we have to go for a next step
to understand the objectives of
Accounting.
Objectives of Accounting:
- To understand the Profitability.
- What a business is about & how it is organized.
- Who are the users of accounting information and the importance of accounting information to particular a user.
- The worth of transaction to a business.
- How much liquid assets a business have (cash or bank) on any particular day, week, month and impact to these assets after accuring any event.
- It tells how much they are owed & owe to someone else.
- Balancing of accounting equation by observance a financial check on actions they perform.
- To help decision makers to devise policies.
We can’t exactly define the
objectives of accounting. All we can do is to discuss these objectives in a
broader scope. Because it depends on the nature of a business for example
priorities of Trading Companies are different from manufacturing companies
similarly the priorities of a manufacturing companies will be different from Financial
Services providing companies. But the main and core objective of all sort of businesses
is to make profit. If a company wants to
make profit or at least wants to be in a place of highly competitive world so
they must have to adopt this true financial accounting mechanism.
Nature of Business:
The thing which
creates a difference to classify a business is their “operation”. We can
classify a business from its operating style into four groups which are
Merchandising, Manufacturing, Services & Financial Services.
A Merchandising firm:
The main
operation of a merchandising firm is to add a value to goods which they bought
and sell it with the added value. Keep in mind that a merchandising firm do not
produce or manufacture products and do not buy these goods for its own use. In
comprehensive way a merchandising company sales products to retail &
wholesale consumer.
The two types
of merchandising business are:
- Retail Business: A retail company performs its operation by adding value to product and sells them to the final consumer.
- Wholesale Business: A wholesale company performs its operations by adding value to products and sells them to another company or retail company.
A Manufacturing Firm:
They are the makers.
They make products for themselves or another party. Their primary target is to
produce the products with the minimum cost, minimum outsourcing & maximum
profit with extensive market share. But be in manufacturing is not an easy task
because from raw material to the final product, from labor to office staff, from
branding to marketing and segmentation to supply chain they have to ensure conformity
of all divisions.
A Service Provider (Company):
The main function
of these firms is to provide a dedicated service to their users. For example
Internet Service Providers, House Cleaning, Vehicles repairing, Maintenance
services of electrical appliances. Sales Tax & Income Tax consultants are
also fall in this category.
A Financial Service Provider:
The main function
of these firms is to provide money related services. As we know the top most
highly money involved sectors are Banks & Insurance Companies. The main
function of a bank is to lend money to borrowers and maintenance of deposits or
funds. The insurance companies provide financial security in case of demerged
property and casualty.
