Economics - Accounting

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Economics - Accounting

Task 1:

Purpose and role of accounting and finance

Accounting as defined by the (CIMA) is the process of "identification, preparation, analysis, measurement, accumulation, correct interpretation and communication of information and knowledge used by the management to plan, control and evaluate within an entity and to assure appropriate use of and accountability for its valuable resources.

Accounting includes the preparation of financial reports for non-management use as well such as financial reporting for creditors, shareholders, tax authorities and regulatory agencies. The significance of Accounting and finance in any organization is of vital importance as it defines the financial position of the company and on the basis of this information the companies make their strategic decisions. (Stickney, 2007, Pp.11-45)The wrong interpretation or representation of accounting in financial reporting can lead the organization towards deterioration. This accounting information provides the manager with the relevant information and basis to make better decisions for business and enable better management of their control functions.

Many types of organizations exist to serve society. Why do these organizations exist? Most of these organizations exists because people need to work together in order to accomplish their goals. The goals are too large, too complex, or too expensive to be achieved without cooperation. All organizations provide goods or services. By working together, people can produce more and better goods and services. Organizations differ as to the types of goods or services they offer such as

Merchandising (retail) companies: sell to consumers good that are produced by other companies. Grocery, department, and hardware stores are examples. Favorite Cookie Company is a merchandising company. It purchases merchandise from a bakery and sells the merchandise to grocery stores.

Manufacturing companies produce goods that they sell to consumers, to merchandising companies, or to other manufacturing companies. (Robinson, 2006, Pp. 28-29)Examples include automobile manufacturers, petroleum refineries, furniture manufacturers, computer companies, and paper companies. The bakery from which Favorite Cookie Company purchases its cookies is a manufacturing company.

Service companies sell services rather than goods. These companies include banks, insurance companies, hospitals universities, law firms, and accounting. Some companies may be a combination of types. For example, many automobile dealers are both retail and service companies. Restaurants are both manufacturing arid service companies.

Organizations may be classified by whether or not they attempt to earn a profit. Profits result from selling goods and services to customers at prices greater than the cost of the items sold. Organizations that sell their goods and services to snake a profit are Business organizations. Governmental and non-profit organizations, sometimes referred to as non business organizations, provide goods or, more typically, services without the intent of making a profit. (Nofsinger, 2008, Pp.11-55)Non business organizations include civic, soia1, and religious organizations. Some types of services such as and health care services are provided by both business and non business organizations. Although the products are similar, the goals of the organizations providing these services are different. Nevertheless, all organizations need accounting information for decision making.

Task 2:

Different accounting methods

Officially there are two basic types ...
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