ACCOUNTING AND BOOKKEEPING

The aim of accounting is to show a financial condition of a company. It is an accounting department of a firm that records and measures all relevant financial data of its business activity.

There are the two types of records which are the most important ones. It is the income statement, on the one hand, and the balance sheet, on the other hand. An accounting department records and measures the activity of a business. It reports on the effects of the transactions the firm’s financial condition. Accounting records give a very important data. It is used by management, stockholders, creditors, independent analysts, banks and government.

Most businesses prepare regularly the two types of records. That is the income statement and balance sheet. These statements show how money was received and spent by the company.

One major tool for the analysis of accounting records is ratio analysis. A ratio analysis is the relationship of two figures. In finance we operate with three main categories of ratios. One ratio deals with profitability, for example, the Return on divestment Ratio. It is used as a measure of a firms operating efficiency.

The second set of ratios deals with assets and liabilities. It helps a company to evaluate its current financial position. The third set of ratios deals with the overall financial structure of the company. It analyses the value of the ownership of the firm.

Who are the users of accounting records? There is a wide range of different users of these records or, as specialists often say financial reporting or financial statements. They are stockholders, present and potential investors and creditors, management, independent analysts, banks, debtors, competitors, tax bodies, government.

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