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Accounting Is the Compilation of Financial Information for Use in Making Economic Decisions

By | October 1999
Page 1 of 18
Accounting is the compilation of financial

information for use in making economic decisions.

BOOKKEEPING provides the basic accounting data, by

systematically recording such day-to-day financial

information as revenue from the sale of products or

services; expenses of business operations such as the cost

of merchandise sold; and overhead expenses such as rent,

wages, and so forth. Accounting principles determine which

financial events and transactions should be recorded in the

bookkeeper's ledgers, journals, and computer printouts.

The analysis and interpretation of these records is the

primary function of accounting. The various financial

statements produced by accountants then furnish business

and other types of organizations with the basis for their

financial planning and control, and provide other interested

parties (investors, the government) with information they

can use to make decisions about these organizations.

FUNCTIONS OF ACCOUNTING Accounting provides

informational access to a firm's financial condition for three

broad interest groups. First, it gives the firm's management

the information to evaluate financial performance over a

previous period of time, and to make decisions regarding

the future. Second, it informs the general public, and

particularly the firm's stockholders or those interested in

buying stock, about the financial status of the firm over the

previous quarter or year. Third, accounting provides

reports for the tax and regulatory departments of the

various levels of government. Accountants also perform

many of the same functions for agencies of the government,

nonprofit organizations, and other entities. Financial

Accounting Large corporations maintain their own internal

accounting departments; small firms may hire the services

of an outside accountant. In either case, the accountant's

principal duty is to gather the figures that relate...

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