Accounting is the language of business. It is the system of recording, summarizing, and analyzing an economic entity’s financial transactions.
The American Accounting Association offers this definition: “The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.” In other words, accounting is the basis of all decision-making.
Effectively communicating this information is key to the success of every business. Those who rely on financial information include internal users, such as a company’s managers and employees, and external users, such as banks, investors, governmental agencies, financial analysts, and labour unions.These users depend upon data supplied by accountants to answer the following types of questions:
• Is the company profitable?
• Is there enough cash to meet payroll needs?
• How much debt does the company have?
• How does the company’s net income compare to its budget?
• What is the balance owed by customers?
• Has the company consistently paid cash dividends?
• How much income does each division generate?
• Should the company invest money to expand?
Accountants must present an organization’s financial information in clear, concise reports that help make questions like these easy to answer. The most common accounting reports are called financial statements.
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A video to help you get the basic terminologies of Accounting
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