The Impact of Financial Accounting
The current economy reinforces the necessity for businesses and organizations to maintain a strict watch over their assets. “Two-thirds of new establishments survive two years and 44 percent survive at least four years” (Knaup, 2005, p. 50). These survival rates are based across the spectrum of all industries. Despite the views that other industries survive more frequently, research shows that restaurant survival rates are slightly below the average rate. The one thing that all of these industries have in common is that their survival depends on accurate financial accounting. Financial accounting is “the area of accounting aimed at serving external users by providing them with general-purpose financial statements” (Wild, 2011, p. 5). To effectively achieve the goals of a company, financial accounting provides the foundation for the success of a company. Having educated employees is not enough, they also have to be aware and trained. Accounting teams who are aware of trends which impact the economy are essential to the survivalability of a company. Overview
Financial accounting is the foundation of a successful business. It drives when to buy, sell, trade, how much to order, it determines when to hire, when to fire, the assets or losses for an organization. The impacts of financial accounting are far reaching. With businesses reaching global proportions and the ability to use the internet as a marketing vehicle, financial accounting is even more important to a company’s bottom line. Companies have an obligation to set a solid foundation, which means thinking beyond “credit and debits” (Porter, 2012, p. 494) which will propel companies beyond the two year point and into the future. I learned a lot of information this semester and though I try to think critically (most of the time) this course challenged me. I assimilated information that I have already begun to apply. But for the purpose of this paper, the aspects of financial accounting that I will focus on will be the benefits of financial accounting, financial statements, tracking transactions, and accountings impact across the spectrum of operations. Benefits of Financial Accounting
Effective financial accounting will contribute to the overall success of any company. Accurate financial accounting is what backers use to determine the viability of a company prior to investing in a company. We must guard against a narrow view of accounting” (Wild, 2011, p. 4), as effective financial accounting is very prudent and beneficial to the company as a whole. As a consumer you benefit from accurate financial accounting, which impacts a company’s bottom line. Yet, many may fail to realize as they go through everyday life, the direct benefits derived from effective financial accounting. One way is when you elect to shop at a grocery store, something as simple as the purchase of a gallon of milk is a benefit you derive from effective financial accounting. The benefit is based on the cost and availability of the milk. Once you have decided to purchase milk, you expect it to be available and reasonably priced. If not, then the business runs the risk of losing a customer. So, you have selected your milk and the sale of the milk is entered into the grocery store’s Point of Sales computer system. The Point of Sales system which accounts for the milk then reduces the inventory and notifies the Inventory system of the sale and determines if and when additional milk is required. After the determination has been made and coordination has been made, the accounting department is notified and determines how to handle the sale of the milk. By observing the trends of milk sales, the accounting department will determine what is best for the bottom line of the company. The frequency and quantity of milk sold will determine how the milk will be further marketed; when to reduce the price...