Accounting is a term that describes the process of consolidating financial information to make it clear and understandable for all stakeholders and shareholders. The main goal of accounting is to record and report a company’s financial transactions, financial performance, and cash flows.
Accounting standards improve the reliability of financial statements. The financial statements include the income statement, balance sheet, cash flow statement, and the statement of retained earnings. The standardized reporting allows all stakeholders and shareholders to assess the performance of a business. Financial statements need to be transparent, reliable, and accurate.
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IMPORTANCE OF ACCOUNTING
Accounting is important, as it keeps a systematic record of the organization’s financial information. Up-to-date records help users compare current financial information to historical data. With full, consistent, and accurate records, it enables users to assess the performance of a company over a period of time.
FACILITATES DECISION-MAKING FOR MANAGEMENT
Accounting is especially important for internal users of the organization. Internal users may include the people that plan, organize, and run companies. The management team needs accounting in making important decisions. Business decisions may range from deciding to pursue geographical expansion to, instead, improving operational efficiency.
Accounting helps to communicate company results to various users. Investors, lenders, and other creditors are the primary external users of accounting information. Investors may be deciding to buy shares in the company, while lenders need to analyze their risk in deciding to lend. It is important for companies to establish credibility with these
MEETS LEGAL REQUIREMENTS
Proper accounting helps organizations ensure accurate reporting of financial assets and liabilities. Standardized accounting financial statements to assess a company’s declared gross revenue and net income. The system of accounting helps to ensure that a company’s financial statements are legally and accurately reported