Describe The Purpose

Topics: Goals In Life

In this task I have been asked to describe the purpose of accounting for an organisation. The organisation I have chosen is Future Fashion. I will be describing the purpose of why it needs accounting.

Purpose of accounting

Accounting is recording a financial transaction which means actions by a business that involve money either going in or out the business for example making a sale or paying a bill. Accounting also means planned or actual use of figures to produce financial information.

Therefore future fashion should record their financial transactions and show what is coming into the business and what is going out of the business. This is so they have financial information which may come in use to them as future reference. Also they can use this information to see how much they are spending into the business and how much they are spending out of the business. It will also be a guideline to them to show them if they are doing well.

Record transactions

It is important that businesses keep their records accurate and up to date for them to run smoothly. The business owner must record all the money coming into the business from sales and all of the money going out such as expenses. If a business fail to do this it may find itself not chasing payments forgetting to pay bills. They may even get into serious trouble with HM Revenue and Customs which is a British government department for the collection of all types of taxes.

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If a business does not record its transactions correctly it cannot report its financial performance accurately and therefore tax payments may be wrong.

Therefore it is important Future Fashion record and keeps up to date all their financial information. As it will help them run their business smoothly. Mangers of Future Fashion should record all financial information such as how many sales they have made a day, month and year. They should also record how much money they have paid towards their suppliers and billers. If mangers of Future Fashion cannot keep this up they will fail to pay bills and their suppliers which will lead to consequences such as they will get into trouble with HM Revenue and Customs. Also if they do not keep up with their financial information they will get their tax payments wrong.

Monitor activity

In a business records will be updated on a regular basis and therefore provide a good indication of how the business is doing in terms of sales, receiving payments, paying expenses. Monitoring activity should also involve keeping an eye on the bank balance to ensure there are enough finds to meet day to day expenses.

Therefore mangers of Future Fashion should monitor all activities that take place in the business. As it will show them how may sales they are making and if them sales are enough. It will also show them how much money will go out and if that is correct. Future fashion can also keep an eye in their bank balance and see if there is enough money for their expenses.


The ability to control the businesses accounts is a direct result of record transactions and monitor activity. If these two things are maintained and closely monitored then actions can be taken to control the balance between money flowing in and out of the business.Therefore Future Fashion should monitor and maintain record transactions and monitor activity as it will help them control their money from going in and out.

For example if it appears that expenses are creeping up but sales are still the same then Future Fashion mangers could look for a way to control or cut costs.Management of the businessA manger is responsible for planning, mentoring and controlling the resources which they are responsible for. A manger who clearly understands the businesses accounts will be better at making informed decisions and plan for the future. Management also considers staff, money, stock and materials.

The manager must ensure there are there is enough money for wages, order new stock, pay bills and meet other demands for cash outflows by balancing this with the money coming in from sales. Mangers of Future Fashion must make sure they plan and control all resources to make it easier for them to handle, this will help mangers make business decisions and future decisions. Mangers will have to make sure they consider their staff members as they help Future Fashion run. They will have to control their money as is important the right amount of money goes in and out of the business. Also stock, mangers will have to order stock and orders stock when it has run out.

Measurement of financial performance

Without financial it is impossible to know if a business was making a profit or a loss or whether the business owned money or not. Or if the business is in dept.Future Fashions managers should record all its financial issues such as profit and loss. By doing this it will show how well they are doing if they are making a loss or profit also it will help them make future business decisions such as considering expansion of the business if they are doing well.

Future fashion should record the following financial performances:

  1. Gross profit- this is the amount of profit left after the cost of producing the good or service is deducted from the amount of sales revenue.
  2. Net profit- this is the smaller amount of profit made after all other expenses are deducted from the gross profit.
  3. Value owed to future fashion- this is the amount of money owed to the business from sales that have not yet been paid for.
  4. Valued owed by future fashion- this is the amount of money that future fashion owes to others for goods or services purchased but not yet paid for.

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Describe The Purpose
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