Accounting has a basic function : “to facilitate the administration of economic activity,” as University of Michigan accounting professor William Paton puts it. This function has two closely related phases: 1) measuring and collating economic data; and 2) communicate the results of this process to interested parties. “
For example, the accountants of a company periodically measure the result of a month,
quarter or year and publish those results in a statement of profit and loss called the statement of operations. These statements include items such as accounts receivable (what is owed to the business) and accounts payable (what the business owes). It can also get quite complicated with topics like retained earnings and accelerated depreciation. This at senior levels of accounting and within the organization.
However, much of the bookkeeping is also about basic bookkeeping. This is the process that records every transaction; every bill paid, every penny due, every euro and cent spent and accumulated.
But the owners of the business, who may be individual owners or millions of shareholders, are most affected by the summaries of these transactions, contained in the financial state . Financial statements summarize the assets of a business. The value of an asset is what it cost when it was first acquired. Financial statements also record the sources of assets. Some assets take the form of loans that must be repaid. Profits are also an asset for the company.
In what is called the double entry bookkeeping , the liabilities are also brought together. Obviously, a business wants to display a higher amount of assets to offset liabilities and make a profit. Managing these two elements is the essence of accounting.
There is a unique system for doing all of this; not every business or individual can design their own accounting system; the result would be chaos!
This article “Accounting has a basic function” was courtesy of Cabinet d’Expertise Comptable