Understanding accounts

Roxanne Wright, Contributor

It is a fact that many students who undertake the study of accounting have no real idea of what
accountants do. We want to congratulate you on choosing the subject, simply because accounting provides
a major service to a business.
Accountants have to pay attention to a number of principles, rules, conventions, formats and procedures.
During the next nine months, we are going to make weekly presentations that will assist you in completing
your examination syllabus and put you in a state of readiness to secure your sought-after grade one in
May/June 2009.
Our innovative presentations will seek to tackle all the important areas in the principles of accounts (POA)
syllabus for the O'level of the Caribbean Examination Council's (CXC) Caribbean Secondary Education
Certificate (CSEC) and the General Certificate Examination. Our emphasis will be on the principles that will
make it easy for you to acquire the accounting knowledge needed.
Principles of accounts has its own vocabulary, concepts, rules and formats which are understood only
through:

acquiring the knowledge of concepts, rules and formats

application of the knowledge gained

interpretation of problems presented.

It is, therefore, clear that the three major skills on which you will be tested are knowledge, application and
interpretation.
We want to remind you that CXC has clearly stated in its CSEC POA syllabus that each candidate will have
to sit three papers. The format of the examination is:
PAPER 1: 60 multiple choice questions
PAPER 2: Structured questions
School-Based Assessment (SBA): This should be done by students in schools
OR
PAPER 3/2: To be done by private candidates who will sit an examination which will be in the form of a
case study.
Now that we have established the importance of the subject and its role in business, we can briefly look at
the purpose of accounting.
What is the purpose of accounting?
Decision makers in every business need information on the:

assets they have

amount of money available

value of expense for a period

total costs of purchases

sales figures

liabilities

state of profit or loss

All of the above are important to:

Potential investors - interested in the viability of the business.

Employees - interested in salaries and increase.

Government officials - interested in the financial affairs for taxation purposes.

It is, therefore, obvious that the main purpose of accounting is to provide information for decision making.
What is a business?
A business is regarded as an activity in which persons are engaged in providing goods or services with an
intention to make a profit. For some businesses, profit making is the sole intention. However, other
businesses, known as non-profit making organizations, exist.
Ownership of businesses
To distinguish a business you have to consider who owns it. For example:
One person finding and investing the capital is a sole trader. When two to 20 persons get in an agreement
and find the capital, this is a partnership. There is also the company, which can be owned by thousands of
persons. Cooperatives are also owned by a number of members.
Principles of accounts allows for the accounting system to keep records of the business' activity, in terms
of what it owns, what it owes and whether it is making a profit.
Features of the accounting system
The accounting system performs the process of bookkeeping and accounting.
Bookkeeping is the recording of acridities which affect the business' finance. These financial transactions
involve the exchange of commodity.
Accounting is the system of measuring, interpreting and reporting information kept in bookkeeping to the
stakeholders in the business. It defines the assets or financial resources of the business. These assets are:

Current assets: that can be easily converted into cash or is already cash.

Fixed assets: used on an ongoing basis in the operation of the business.

Liabilities are obligations of the business to the owners who are the providers of resources.
These liabilities are:

Current liabilities: debts that must be paid within a short period of time, say a year.

Long-term liabilities: debts given for longer periods of time before they fall due.

Capital or equity
This is the term given for the value of the owner's interest in the business.
The ledger
The ledger is a specially ruled book with the left-hand side being called the debit side and the right-hand
side the credit side. It is used to record assets, liabilities, expenses and revenue of the business.

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