Accounting – 1.1 The purpose of accounting | e-Consult
1.1 The purpose of accounting (1 questions)
The information recorded by a bookkeeper forms the raw data that accountants use to prepare financial statements. The bookkeeper's meticulous record of all financial transactions – sales, purchases, expenses, receipts, and payments – is the foundation upon which the accountant builds a comprehensive picture of the business's financial health. The accountant takes the bookkeeper's data, reviews it for accuracy, and then organizes and summarizes it into various financial statements. This process involves analysing the transactions, applying accounting principles (like accrual accounting), and ensuring the statements comply with relevant accounting standards (e.g., IFRS or UK GAAP).
Key financial statements prepared by an accountant include:
| Financial Statement | Description |
| Profit and Loss Account (Income Statement) | Reports the business's profitability over a period of time (e.g., a year). It shows revenues, expenses, and the resulting profit or loss. |
| Balance Sheet | Presents a snapshot of the business's assets, liabilities, and equity at a specific point in time. It follows the accounting equation: Assets = Liabilities + Equity. |
| Statement of Changes in Equity | Explains the changes in the owners' equity over a period of time. This includes items like profits, losses, and capital contributions. |
| Statement of Cash Flows | Shows the movement of cash both into and out of the business over a period of time. It is divided into operating, investing, and financing activities. |
These financial statements are crucial for stakeholders to assess the business's performance, financial position, and overall viability. They provide valuable information for decision-making, whether it's for investors, lenders, or management.