Accounting Standards

Importance of Accounting Standards

Importance of Accounting Standards

Task 1

Introduction

There is always a moving force behind every endeavours, which ensures its smooth functioning and operations. In the case of business activities and organizations, that movement is provided by checks or accounting records. Accounting records are defined as the statements, books and documents involved for financial analysis and evaluations. Accounting records includes invoices, assets and liabilities records, ledgers, journals, statements of profit/loss, financial positions, comprehensive incomes, cash flows etc (Hung, 2000, pp 401-420). Business does not only include buying and selling, bank deposits and payment of salaries, but also having a system in place to which the business activities can have its operations and standards conformed and endorsed. Discussion Identification

Accounting is defined as the orderly and comprehensive recording of financial transactions relating to a business. It can also be defined as the process of analysing and reporting the transactions. The financial statements that summarise a large company's operations, financial position and cash flows over a particular period are a brief summary of thousands of financial transactions it may have entered into over the time (Watts & Zimmerman, 1978, pp 112-134). Accounting records are, therefore, the documents for recording and maintaining of transactions relating to business activities.

Description and purpose of various accounting records

The accounting system of a business would contain various categories of records. There may be different types of financial records, such as invoices, journals, books etc but the main accounting records consists of financial statements that illustrates the financial condition of a business. Each category of accounting record has particular information about the business, and each is used for a different purpose, but each type is also related to another record in your records of financial statements. Income statements

The income statement keeps records of income and expenditure transactions of the business. It is also called the statement of comprehensive income. This category of accounting record is used to measure the profitability of the business. Income statements can be prepared for any particular business period but are generally prepared on a daily, monthly, quarterly or annual basis. Analysis of the income statement trends facilitates in determinations of periods when the business incurs more expenses or generates additional income so that a back up plan for budget surpluses and deficits can be created. Statement of Financial position

The statement of financial position records the assets and liabilities of the business. Assets and liabilities are differentiated into current and long-term categories on the statement of financial position and listed in order of liquidity. Current accounts are expected to be utilised within a year, and long-term accounts will take more than one year to be paid. The most liquid assets are recorded first on the statement of financial position and include cash and accounts-receivable balances. Owner's equity (capital) is also detailed on the statement of financial position (Ross et al, 2008, pp 52-68). The presentation of these heads allows investors and lenders to analyse the potential financial position of the business and ...