Efficiency and Effectiveness of an Accounting System
CHAPTER 1
THE PROBLEM AND ITS SETTINGS
Introduction Most of the world’s work is done through organization – groups of people who work together to accomplish one or more objectives. In doing its work, an organization uses resources – labor, materials, various services, building and equipment. These resources need to be financed, or paid for to work effectively, the people in organization need information about the amounts to these resources, the means of financing them, and the results achieved through using them. Parties outside the organization need similar information to make judgments about the organization. Human beings have limitations. Everyday transactions cannot be retained in the human brain for quite a period of time without confusions and complications. To avoid these, transactions and other important events should be recorded. Such written records serve as reference in the future. As a small business owner you just need to know the accounting basic principles. As your business grows, you can jump into the deep end of the accounting pool with ratios and monetary unit assumptions later. Let’s just get our feet wet first because accounting is one of the most important components of your small business. Without it you are just setting yourself up for failure.
The most basic definition of accounting is the documentation of a transaction. Paying your website fee affects your small business’s financial condition because it would then have less cash on hand. Such an economic event or condition that directly changes your business’s financial condition is a financial (business) transaction. All business transactions can be stated in terms of changes in the three elements of this accounting basic equation which is to the base of all accounting:
Assets = Liabilities + Owner’s Equity However, this format is difficult to use when multiple transactions must be recorded daily. Therefore, accounting basic systems are designed to show the increases
THE PROBLEM AND ITS SETTINGS
Introduction Most of the world’s work is done through organization – groups of people who work together to accomplish one or more objectives. In doing its work, an organization uses resources – labor, materials, various services, building and equipment. These resources need to be financed, or paid for to work effectively, the people in organization need information about the amounts to these resources, the means of financing them, and the results achieved through using them. Parties outside the organization need similar information to make judgments about the organization. Human beings have limitations. Everyday transactions cannot be retained in the human brain for quite a period of time without confusions and complications. To avoid these, transactions and other important events should be recorded. Such written records serve as reference in the future. As a small business owner you just need to know the accounting basic principles. As your business grows, you can jump into the deep end of the accounting pool with ratios and monetary unit assumptions later. Let’s just get our feet wet first because accounting is one of the most important components of your small business. Without it you are just setting yourself up for failure.
The most basic definition of accounting is the documentation of a transaction. Paying your website fee affects your small business’s financial condition because it would then have less cash on hand. Such an economic event or condition that directly changes your business’s financial condition is a financial (business) transaction. All business transactions can be stated in terms of changes in the three elements of this accounting basic equation which is to the base of all accounting:
Assets = Liabilities + Owner’s Equity However, this format is difficult to use when multiple transactions must be recorded daily. Therefore, accounting basic systems are designed to show the increases