ACCOUNTING
CLASS
TOPIC:
THE
PURPOSE
OF
ACCOUNTING
LEARNING OBJECTIVES
Students should be able to:
 Define ACCOUNTING
 Differentiate between BOOK-KEEPING and ACCOUNTING
 State the purpose of measuring BUSINESS PROFIT and LOSS
 Explain the role of accounting in providing information for monitoring
progress and decision-making
DEFINITION OF ACCOUNTING
ACCOUNTING IS OFTEN REFERRED TO AS THE
"LANGUAGE OF BUSINESS." IT PROVIDES A STRUCTURED
FRAMEWORK FOR RECORDING, ANALYZING, AND
INTERPRETING FINANCIAL INFORMATION, ALLOWING
STAKEHOLDERS TO MAKE INFORMED DECISIONS.
BOOK-KEEPING Vs. ACCOUNTING
PURPOSE OF ACCOUNTING
 MONITORING PROGRESS: PROVIDES FINANCIAL INFORMATION TO
STAKEHOLDERS TO ASSESS THE PERFORMANCE AND PROGRESS OF A
BUSINESS.
 DECISION-MAKING: OFFERS VALUABLE INSIGHTS FOR MAKING
INFORMED BUSINESS DECISIONS, SUCH AS INVESTMENT, EXPANSION,
AND COST-CUTTING MEASURES.
 FINANCIAL REPORTING: GENERATES FINANCIAL STATEMENTS THAT
COMPLY WITH ACCOUNTING STANDARDS AND ARE USED FOR
EXTERNAL REPORTING.
PURPOSE OF BUSINESS PROFIT AND LOSS
 PERFORMANCE EVALUATION: MEASURES THE FINANCIAL SUCCESS OR FAILURE OF A
BUSINESS OVER A SPECIFIC PERIOD.
 DECISION-MAKING: HELPS BUSINESSES IDENTIFY AREAS FOR IMPROVEMENT,
ALLOCATE RESOURCES, AND ASSESS THE EFFECTIVENESS OF STRATEGIES.
 COMPARISON: ENABLES COMPARISON WITH PREVIOUS PERIODS, COMPETITORS,
AND INDUSTRY BENCHMARKS.
 INVESTMENT DECISIONS: PROVIDES VALUABLE INFORMATION FOR INVESTORS TO
ASSESS THE PROFITABILITY AND RISK ASSOCIATED WITH A BUSINESS.
THE ROLE OF ACCOUNTING IN DECISION MAKING
 FINANCIAL ANALYSIS: ACCOUNTING PROVIDES TOOLS FOR ANALYZING FINANCIAL
DATA, SUCH AS RATIOS AND TRENDS, TO IDENTIFY STRENGTHS, WEAKNESSES, AND
AREAS FOR IMPROVEMENT.
 RISK ASSESSMENT: ACCOUNTANTS CAN HELP BUSINESSES ASSESS FINANCIAL RISKS
AND DEVELOP STRATEGIES TO MITIGATE THEM.
 RESOURCE ALLOCATION: ACCOUNTING INFORMATION CAN BE USED TO ALLOCATE
RESOURCES EFFECTIVELY AND ENSURE THAT FUNDS ARE USED EFFICIENTLY.
 STRATEGIC PLANNING: ACCOUNTANTS CAN ASSIST IN DEVELOPING AND
EVALUATING STRATEGIC PLANS BASED ON FINANCIAL PROJECTIONS AND
ANALYSIS.
CLASS ACTIVITY
CLASS ACTIVITY
Class Activity: Accounting Process
Instructions:
Copy and complete the table below by placing a tick (d) in the appropriate column to
indicate what each activity represents.
CLASS ACTIVITY
Class Activity: Accounting Process
Instructions:
Copy and complete the table below by placing a tick (d) in the appropriate column to
indicate what each activity represents.
HOMEWORK
1. Define the following terms:
• Accounting
• Book-keeping
• Financial statement
• Profit and loss
• Income statement
2. Explain the difference between book-keeping and accounting.
3. What are the main purposes of accounting in a business?
4. Why is it important for a business to measure its profit and loss?
5. How can accounting information help a business make better
decisions?
6. Analyze the following scenarios and determine whether they are
examples of financial data or not: