INTRODUCTION TO ACCOUNTING
THEORY
• Definition of accounting
Accounting is referred to as a system of gathering, analysing, recording, reporting and the
interpretation of financial information.
Gathering- to bring together all the financial information that affects a business within a
specified period.
Analysing-to determine how the financial information will affect the business.
Recording- to input the financial information through the proper accounting processes.
Reporting-to summarize all financial information for a specific period so that it can be read
and understood.
Interpretation-to prepare an analysis of the summarized reports so that users can make
informed decisions about the business.
• The users of accounting information
Internal users-these are the people within a business or organisation that use the accounting
information for different reasons.
➢ Owners- they use the accounting information to determine whether their business is
profitable and financially viable over a long period of time.
➢ Managers-use the information to ensure that the business operates effectively.
➢ Employees-use the information to determine whether their employer can provide a stable
employment and remuneration.
External users-these are the people outside a business or an organisation that use accounting
information for different reasons
➢ Customers-use the information to determine whether a business can provide them with the
product they require for a period.
➢ Competitors-use the information to maintain competitive edge.
➢ Lenders-use the information to determine whether the business would be able to pay any
loans made to the business and interest on those loans.
➢ Government-use the information to determine whether a business should be registered for
tax purposes and how much tax should be paid.
THEORY
• Definition of accounting
Accounting is referred to as a system of gathering, analysing, recording, reporting and the
interpretation of financial information.
Gathering- to bring together all the financial information that affects a business within a
specified period.
Analysing-to determine how the financial information will affect the business.
Recording- to input the financial information through the proper accounting processes.
Reporting-to summarize all financial information for a specific period so that it can be read
and understood.
Interpretation-to prepare an analysis of the summarized reports so that users can make
informed decisions about the business.
• The users of accounting information
Internal users-these are the people within a business or organisation that use the accounting
information for different reasons.
➢ Owners- they use the accounting information to determine whether their business is
profitable and financially viable over a long period of time.
➢ Managers-use the information to ensure that the business operates effectively.
➢ Employees-use the information to determine whether their employer can provide a stable
employment and remuneration.
External users-these are the people outside a business or an organisation that use accounting
information for different reasons
➢ Customers-use the information to determine whether a business can provide them with the
product they require for a period.
➢ Competitors-use the information to maintain competitive edge.
➢ Lenders-use the information to determine whether the business would be able to pay any
loans made to the business and interest on those loans.
➢ Government-use the information to determine whether a business should be registered for
tax purposes and how much tax should be paid.
