Accountancy Theory
Accountancy Theory
Accounting is the systematic process of recording, summarizing, analyzing, and reporting financial
transactions and information of an organization or individual. It helps in tracking financial activities,
ensuring accuracy, and providing insights for decision-making, budgeting, and tax purposes.
are:
1. Recording Financial Transactions: Accounting is used to record all financial transactions systematically
and in a standardized format. This helps in keeping a reliable record of al I business activities.
3. Analyzing Financial Data: Accounting allows for the analysis of financial data to assess the financial
health and performance of a business. This analysis can aid in making informed decisions.
4. Financial Reporting: Accounting ensures the preparation and presentation of financial reports to
stakeholders, including shareholders, investors, creditors, and government authorities. These reports
provide transparency and accou ntabi I ity.
5. Compliance: Accounting helps in ensuring compliance with relevant financial regulations and tax laws.
It helps a business follow legal
7. Budgeting and Planning: Accounting assists in budgeting and planning for the future. It provides
historical financial data that can be used to create forecasts and budgets.
8. Evaluating Efficiency and Performance: Through financial ratios and analysis, accounting allows for the
assessment of a company's efficiency, profitability, and overall performance.
9. Risk Management: Accounting helps in identifying and managing financial risks, such as credit risk,
market risk, and operational risk.
10. Resource Allocation: It aids in determining how resources should be allocated within the business to
achieve its financial goals and objectives.
These objectives collectively contribute to the effective management of a business's financial affairs and
its ability to provide relevant, reliable, and timely
information to stakeholders.
. Internal Users:
• Management: Managers use accounting information to make decisions, set goals, and monitor
• 1::.mployees: 1::.mployees may use financial statements to understand the company's performance
and stability, especially in terms of job security.
• Shareholders: Shareholders use financial reports to assess the company's performance and financial
stabi I ity, which can influence their investment decisions.
• Board of Directors: The board relies on financial information to oversee the management's actions and
ensure that they align with the company's objectives.
External Users:
2. External Users:
• Creditors: Lenders and suppliers use financial information to evaluate a company's creditworthiness
and determine
credit terms.
• Regulators and Tax Authorities: Government agencies and tax authorities use financial reports to
enforce regulations, collect taxes, and ensure compliance.
• Customers: Customers may analyze a company's financial health to gauge its ability to deliver products
or services consistently.
• Competitors: Competitors can study a company's financial statements for benchmarking and strategic
purposes.
• Analysts and Financial Advisors: Financial analysts and advisors use accounting information to provide
insights and recommendations to clients and investors