FAA/U1 Topic 3 Functions of Accounting
Functions of Accounting
To move ahead to the functions of accounting, first of all, it is very important to know about the role of accounting. The basic role of accounting is to provide relevant financial information to the businessmen and the stakeholders. Furthermore, facilitating the decision making processes and keeping them updated. There are two types of functions of accounting, first, historical functioning and second, managerial functionals.
Historical functioning of accounting involves keeping the accurate records of all the past transactions made in the business. This type of functioning of accounting includes:
- Recording the financial transactions and maintain a journal to keep them all.
- It is important to classify and separate the records and the ledger.
- Preparation of brief summary takes place for the quick reviews.
- This type of accounting gives the net result other than just keeping the records.
- Preparation of balance sheet takes place to determine the financial position of the business.
- The analyzed data and records are then used for other purposes.
- The last step is to communicate the obtained financial information to the interested sectors, for instance, owners, suppliers, government, researchers, etc.
In an organization, the management committee looks for all kind of decision making. To ensure that the decisions are smooth and beneficial for everyone, they do an evaluation of the past records provided by accounting. These are managerial functions. The five managerial functions of accounting are:
- Formation of plans in addition to controlling the financial policies.
- Besides that, a budget is prepared to estimate the total expenditure for future activities.
- Also, cost control is made possible by comparing the cost with the efficiency of the work.
- The accounting also provides the necessary information during the evaluation of employee’s performance.
- To check for frauds and errors is what the workability of the whole procedure depends.