Accounting is essential for giving business owners, investors and management the information that they need to assess the financial progress of the organization. Business owners and investors are encouraged to be aware of the role that accounting plays in order for them to be well prepared.
Purpose of Accounting
- The role of accounting is to enable everyone who is actively involved in the business to make smart business decisions that are based on the financial information that it provides. Accounting involves summarizing and evaluating business activities, providing interpretations of financial data and ensuring that the information is relayed to stakeholders.
- It is difficult for any business or company to make the right business decisions if it does not have access to reliable financial information that is provided in a timely manner. Accountants have the responsibility of coming up with this type of information. They make it possible for key decision makers in organizations to understand what the financial information means and how to use it to address various financial challenges.
- Accountants provide essential services such as the development and preparation of financial reports, preparing tax returns and budgets among other specialized tasks.
- With advances in computer technology, it has become much easier for accountants to get numbers. The complexities of accounting constitute evaluations, interpretations and effectively passing on the information while dealing with various business entities.
Management and Financial Accounting
- Management and financial accounting are the key fields of accounting. Management accounting serves the purpose of helping you keep your business afloat while the financial field lets you know how well your business is performing.
- Management accounting is useful for managerial positions as it helps them carry out their tasks more efficiently. The flexible nature of this type of accounting allows it to be structured according to the specified needs of the managers involved and the information is used to facilitate decision making.
- Financial accounting is based on set standards and regulations that stipulate how financial reporting is carried out. This ensures accuracy of the information provided and makes it possible for comparisons to be made between statements of different companies in similar industries.
Using Financial Information
Financial information or statements are used by a wide range of entities including business owners, investors, managers and government agencies. Other stakeholders such as suppliers can also use the information to find out the financial performance of the companies that they work with. If you run a business, it is important for you to have the information that you need to monitor your financial situation.
Business owners typically want to know what their sales are, expenditure, profits, assets, debt and the amount invested in the company as well as where the money goes. Financial statements are necessary for providing this type of information.
Income statements give you insight into the sales you make along with your expenses and whether or not profits were made. Balance sheets show you your assets and liabilities as well as how much has been invested in the company. Cash flow statements indicate the amount of money that goes in and out of your business.