Why accounting is needed: its five functions shown on one bakery
Using one month at the «Tong non» bakery, we walk through the five functions of accounting: a cost budget, the path from document to journal entry, splitting a plan-versus-actual variance into causes, who needs the figures, and a markup and margin analysis.
«Tong non» LLC is a small neighbourhood bakery: one tandoor workshop, four bakers and daily bread deliveries to nearby shops. For a long time the owner, Dilnoza, thought of accounting as "paperwork for the tax office". The accountant, Jasur, did not argue. He suggested following one month together from start to finish. During that month, accounting did five different jobs.
To keep the example simple, VAT, payroll deductions, social tax and other taxes are left out of the calculations. The company name and all figures are hypothetical.
What is planned at the start of the month, and how does each document get into the books?
1. Planning. Before the month began, Dilnoza and Jasur drew up a cost budget for the coming month. They based it on the volume agreed with the shops: 30 000 loaves a month at 4 000 soum each. Under the internal norm, one loaf needs 0.35 kg of flour.
| Item | Calculation | Plan, soum |
|---|---|---|
| Revenue | 30 000 pcs × 4 000 | 120 000 000 |
| Flour | 10 500 kg × 5 000 | 52 500 000 |
| Other raw materials (yeast, salt, oil, sesame) | per budget | 7 500 000 |
| Bakers' wages | 4 people × 5 000 000 | 20 000 000 |
| Gas and electricity | per budget | 8 000 000 |
| Total costs | 88 000 000 | |
| Notional profit | 120 000 000 − 88 000 000 | 32 000 000 |
Before a single loaf was baked, the budget revealed something important: flour makes up almost 60 percent of all costs (52 500 000 ÷ 88 000 000 = 59.7%). So the price of flour is what swings the month's result the most. Jasur advised agreeing the price with the supplier in advance, but the agreement only covered the first week.
2. Recording. During the month every transaction was first documented and only then posted to the accounts. Jasur's rule is simple: no document, no entry. "I remember it" does not go into the books.
| No. | Document | Transaction | Debit | Credit | Amount, soum |
|---|---|---|---|---|---|
| 1 | Supplier's delivery note | 10 300 kg of flour received at 5 400 soum | 1010 | 6010 | 55 620 000 |
| 2 | Requisition for issuing materials to the workshop | Flour issued for baking | 2010 | 1010 | 55 620 000 |
| 3 | Timesheet and payroll sheet | Bakers' wages accrued | 2010 | 6710 | 20 000 000 |
| 4 | Delivery notes to the shops | 29 000 loaves sold at 4 000 soum | 4010 | 9010 | 116 000 000 |
| 5 | Bank statement | Shops transferred money | 5110 | 4010 | 98 000 000 |
All the flour received this month was used up, so account 1010 has no balance. Every account pairing is taken from the model tables of NAS No. 21 (paragraphs are listed in the sources).
Note line 4: the income was recorded on the day the bread was shipped, without waiting for the money. Under paragraph 16 of NAS No. 1, transactions are recognised not when cash is received or paid but when they occur (accrual basis). That is why at the end of the month the shops' debt shows in account 4010: 116 000 000 − 98 000 000 = 18 000 000 soum. If the books were kept on a cash basis only, this debt would not appear anywhere.
What does the gap between plan and actual show at the end of the month, and who needs these figures?
3. Control. After closing the month, Jasur put the budget side by side with the actual figures.
| Item | Plan, soum | Actual, soum | Variance, soum |
|---|---|---|---|
| Revenue | 120 000 000 | 116 000 000 | −4 000 000 |
| Flour | 52 500 000 | 55 620 000 | +3 120 000 |
| Other raw materials | 7 500 000 | 7 300 000 | −200 000 |
| Bakers' wages | 20 000 000 | 20 000 000 | 0 |
| Gas and electricity | 8 000 000 | 8 900 000 | +900 000 |
| Total costs | 88 000 000 | 91 820 000 | +3 820 000 |
| Notional profit | 32 000 000 | 24 180 000 | −7 820 000 |
The reason for the revenue variance is clear: one of the shops closed for two weeks for repairs, and 1 000 fewer loaves were sold. The flour variance, however, hides three causes behind one number. To separate them, the norm for the actual volume is calculated: 29 000 pcs × 0.35 kg = 10 150 kg.
| Cause of the flour variance | Calculation | Soum |
|---|---|---|
| Flour became more expensive | (5 400 − 5 000) × 10 300 kg | +4 120 000 |
| Less bread was baked | (10 150 − 10 500) kg × 5 000 | −1 750 000 |
| Usage above the norm | (10 300 − 10 150) kg × 5 000 | +750 000 |
| Total | +3 120 000 |
The most interesting line is the third: where did 150 kg of flour go? Jasur went down to the workshop and checked: a new baker was cutting the dough heavier than the norm, so each loaf used 0.355 kg of flour on average (10 300 ÷ 29 000). The scales were adjusted. This variance matters not because the amount is large but because it can repeat every month: 150 kg a month over 12 months is 1 800 kg, which at the current price is 1 800 × 5 400 = 9 720 000 soum. The 900 000 soum overspend on gas was also put under a separate check.
4. Information. Different people take different things from the same accounting records. Paragraph 10 of NAS No. 1 sets the objective of financial statements as providing a wide range of users who make economic decisions with information about the entity's financial position, its performance and its cash flows.
| Who | What they want to know | What they take from «Tong non»'s books |
|---|---|---|
| Dilnoza (founder and manager) | Was the plan met, where did profit shrink | The plan-versus-actual table, the three causes of the flour variance |
| The bank (if a loan for a new tandoor is requested) | Can the company repay the debt | Financial results and cash flows, customers' debts |
| The flour supplier | Will payment arrive on time | The balance owed in account 6010 and the payment history |
| The tax authority | Was the tax base determined correctly | Tax returns and the documents they are based on |
| The bakers | Were wages calculated correctly | The timesheet and the payroll sheet |
At year end these data are brought together in the annual financial statements. Under paragraph 12 of NAS No. 1, they consist of the following: the balance sheet, the statement of financial results, the statement of equity, the statement of cash flows and the notes to the financial statements.
What conclusions are drawn from the figures?
5. Analysis. Control answers the question "where is the variance", while analysis answers "what does it mean for the business and what do we do next". Jasur calculated a few simple ratios (in the example all bread produced was sold, so the cost of one loaf is total costs divided by the number of loaves).
| Indicator | Formula | Plan | Actual |
|---|---|---|---|
| Sales plan fulfilment | actual revenue ÷ planned revenue | 100% | 96.7% |
| Cost of one loaf | total costs ÷ number of loaves | 2 933 soum | 3 166 soum |
| Markup | (price − cost) ÷ cost | 36.4% | 26.3% |
| Margin | (price − cost) ÷ price | 26.7% | 20.8% |
| Share of flour in costs | flour ÷ total costs | 59.7% | 60.6% |
| Share of sales not yet paid | 18 000 000 ÷ 116 000 000 | — | 15.5% |
The conclusion is visible at a glance. The cost of one loaf rose by 233 soum while the price stayed the same, so the margin fell from 26.7% to 20.8%. If costs stay at this level, restoring the planned margin would have required a price of about 3 166 ÷ (1 − 0.2667) ≈ 4 320 soum. Before raising the price, Dilnoza chose cheaper routes: stopping usage above the norm and agreeing the flour price for three months instead of one. And the fact that 15.5 percent of sales were still owed by the shops prompted her to think about shortening the payment terms given to them.
That closed the circle: the conclusions of the analysis went into the next month's budget, and the plan was drawn up from scratch again.
| Function | What it does | In the «Tong non» example |
|---|---|---|
| Planning | Sets the goal and the cost limit for the coming period in figures | 30 000 loaves, 88 000 000 soum of costs, 32 000 000 soum of notional profit |
| Recording | Posts each transaction to the accounts on the basis of a document | 5 entries: flour, workshop, wages, sales and bank |
| Control | Compares plan with actual and finds the variance | Flour +3 120 000 soum, of which 750 000 soum is usage above the norm |
| Information | Delivers the right figure to the right person | Manager, bank, supplier, tax authority, bakers |
| Analysis | Draws the cause and the next step from the figures | Margin fell from 26.7% to 20.8%; scales adjusted, flour price agreed for a longer term |
At the end of the month Dilnoza put her conclusion into words: accounting is not paperwork for the tax office but the company's dashboard. Switch it off and the car keeps moving, but you no longer know how much fuel is left.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
"Nurafshon logistika" abandoned an outdated accounting program and wrote it off: initial cost 24 000 000 soum, accumulated amortization 18 000 000 soum, no proceeds. All entries were passed through 9220. What is the result and its closing entry?
The salaries of the company director and the chief accountant were accrued. According to para. 412 of NAS No. 21, which entry is correct?
Under NAS No. 21, on the basis of which documents are transactions in account 5110 "Settlement account" recorded in the books?
While checking the bank statement, the accountant found that the bank had debited an amount from the organisation's settlement account that did not belong to it. Which journal entry records lodging a claim against the bank?
How must the accountant of Yangiyer Plastik LLC organise analytical accounting for 6990? Choose the NAS No. 21 rule.
Answered: 0 / 50 of 5 correct
All tests →See also
- Accounting
- Primary document
- Financial statements
- How should the plan fulfilment percentage be calculated, and how is it linked to the growth rate?
- Markup and margin: if you add a 25 percent markup, why does your profit come out at 20 percent of the price?
- Financial statement forms from 2025: balance sheet, financial results, equity and cash flows (Order No. 181)
- Accounting section
Sources
- NAS No. 1 "Presentation of Financial Statements and Accounting Policies", paragraphs 10, 12 and 16 · objective of financial statements; composition of the annual financial statements; accrual basis
- NAS No. 21 "Chart of Accounts": paragraph 104 (lines 1, 12), paragraph 120 (line 17), paragraph 174 (line 1), paragraph 226 (line 3) · 1010 / 6010; 2010 / 1010; 2010 / 6710; 4010 / 9010; 5110 / 4010
- Example, figures and calculations · compiled by the author, hypothetical