The Purpose Of Accounting
Overview
Every business, from a single market trader to a global airline, has to answer two simple questions: am I making money, and where does the money stand right now? Accounting is the system that answers them. It begins with the patient, day by day recording of every transaction (book-keeping) and ends with clear financial statements that turn that raw record into a story the owner can act on.
In this lesson you will see exactly how book-keeping differs from accounting, why measuring profit and loss matters so much to the people who own and lend to a business, and how the information accountants produce is used to monitor progress and make decisions. Master this and the rest of the course (ledgers, trial balances, financial statements) will make far more sense, because you will know what it is all for.
Objectives
- the difference between book-keeping and accounting.
- the purposes of measuring business profit and loss.
- the role of accounting in providing information for monitoring progress and decision-making.
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Lesson Evaluation
Congratulations on completing the lesson on The Purpose Of Accounting. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which statement best describes book-keeping? A. Preparing financial statements at the year end B. The detailed recording of all the financial transactions of a business C. Calculating the tax a business must pay D. Deciding whether to expand a business Answer: B
- A business has income of $90,000 and expenses of $78,000 for the year. What is the result? A. Loss of $12,000 B. Profit of $12,000 C. Profit of $168,000 D. Loss of $168,000 Answer: B
- Which statement shows the assets and liabilities of a business on a certain date? A. Income statement B. Trial balance C. Statement of financial position D. Cash book Answer: C
- Which of these is a purpose of accounting rather than book-keeping? A. Recording each cash sale as it happens B. Writing up the purchases of the day C. Preparing and interpreting financial statements D. Entering a receipt in the cash book Answer: C
- A trader made a profit of $20,000 last year and $25,000 this year. By what percentage has the profit increased? A. 5% B. 20% C. 25% D. 80% Answer: C
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