Chapter 1, Problem 1DQ

To determine

Concept Introduction:

Accounting is an important aspect of any business. Without proper accounting, the business owners would not be able to identify the incomes earned or losses incurred. They will not be able to know whether they are earning something or not. So, accounting is the essence of the business and without accounting the business has no sense.

To discuss:

The purpose of accounting.

Explanation of Solution

Accounting is important for every type of organization, whether it is in manufacturing or service industry. Without accounting, the business is of no use because the main purpose of doing business is to earn profits and without proper accounting, no one will be able to understand whether the business is making profit or not. Hence, accounting is the vital essence of any business.

The purpose of accounting is to collect the data, analyze it and present it to the users of the information. It helps in decision making and providing insights about the organization. The accounting information mainly contains details about assets and liabilities, incomes and expenses and cash flows of the organization. This information is known as accounting information and is presented in the form of financial statements. This financial statement consists of the statement of income or loss, statement of assets and liabilities and statement of cash flow.

Thus, accounting helps in building, managing and maintaining the business.