ACCOUNTING, business,financial

ACCOUNTING

Accounting has been defined as ‘‘the language of
business’’ because it is the basic tool for recording,
reporting, and evaluating economic events and transactions
that affect business enterprises. Accounting
processes document all aspects of a business’s financial
performance, from payroll costs, capital expenditures, and other obligations to sales revenue and owners’equity.
An understanding of the financial data
contained in accounting documents, then, is regarded
as essential to reaching an accurate picture of a business’s
true financial well-being.
Armed with such
knowledge, businesses can make appropriate financial
and strategic decisions about their future; conversely,
incomplete or inaccurate accounting data can cripple a
company, no matter its size or orientation. Accounting’s
importance as a barometer of business health—
past, present, and future and tool of business navigation
is reflected in the words of the American Institute
of Certified Public Accountants (AICPA), which
defined accounting as a ‘‘service activity.’’
Accounting,
said the AICPA, is intended ‘‘to provide quantitative
information, primarily financial in nature, about
economic activities that is intended to be useful in
making economic decisions—making reasoned
choices among alternative courses of action.’’
A business’s accounting system contains information
potentially relevent to a wide range of people.
In addition to business owners, who rely on accounting
data to gauge their enterprise’s financial progress,
accounting data can communicate relevant information
to investors, creditors, managers, and others who
interact with the business in question. As a result,
accounting is sometimes divided into two distinct
subsets—financial accounting and management accounting—
that reflect the different information needs
of these end users. Financial accounting is a branch of
accounting that provides people outside the business—
such as investors or loan officers—with qualitative
information regarding an enterprise’s economic
resources, obligations, financial performance, and
cash flow. Management accounting, on the other
hand, refers to accounting data used by business owners,
supervisors, and other employees of a business to
gauge their enterprises’s health and operating trends.