The underlying purpose of accounting is to provide financial information about an economic entity.The financial information provided by an accounting system is needed by managerial decision makers to help them plan and control the activities of the economic entity. Financial information is also needed by outsiders-owners, creditors, investors, the government, and the public-who have supplied money to the business or who have some other interest that will be served by information about its financial position and operating results.

A system for creating accounting Information:-

In order to provide up-to-date financial information about a business . It is necessary to create a systematic record of the daily business activity. In terms of money, for example goods and services are purchased and sold, credit is extended to customers, debts are incurred, and cash is received and paid out. These transactions are typical of business events which can be expressed in monetary terms, and must be entered in accounting records. The recording process may be performed in many ways: that is , by writing with pen or pencil, by printing with mechanical or electronic equipment, or by punching holes or making magnetic impressions on cards or tape .

Of course, not all business events can be measured and described in monetary terms. therefore , we do not show in the accounting records the appointment of a new chief executive or the signing of a labor contract, except as these happenings in turn affect future business transactions. In addition to compiling a narrative record of events as they occur, we classify various transactions and events into related groups or categories . Classification enables us to reduce a mass detail, into compact and usable form. For example, grouping all transactions in which cash is received or paid out is logical step in developing useful information about the cash position of a business enterprise.

To create account information in a form which will be useful to the people who use the information, we summarize the classified information into financial reports, called financial statements. These financial statements are concise, perhaps only three or four pages for a large business. The summarize the business transactions of a specific time period such as a month or a year. Financial statements show the financial position or the business at the time of the report and the operating results by which it arrived at this position. These three steps we have described-recording, classifying, and summarizing- are the means of creating accounting information. Thus one part of accounting is a system for creating financial information.