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The Component of Financial Statement

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The Component of Financial Statement

  • By
  • Feb. 2010
  • 3578 Words
Page 1 of 11
Accounting is something that effects people in their personal lives just as much as it affects very large business. Its concern about the discipline of measuring, communicating and interpreting financial activity and also widely referred to as the "language of business”. It’s the way business people set goals measure results and evaluate performance. It’s difficult to participate if you don’t speak the language. The better you understand this language, the better your business decision will be, and the better you can manage the financial aspects of living.

When people talk about accounting, they are normally referring to accounting as used by business and other organizations. They cannot keep all the details in their minds so they have to keep record of it. Organizations not only record cash received and paid out. They will also record goods bought and sold, items bought to use rather than to sell, and so on. This part of accounting is usually called the recording of data.

When the data is being recorded it has to be organized so as to be most useful to the business. This is known as classifying and summarizing of data. Following such classifications and summaries it will be possible to work out how much profit or loss has been made by the business during a particular period. It will also be possible to show what resources are owned by the business, and what is owed by it, on the closing date of the period.

From the data, people skilled in accounting should be able to tell whether or not the business is performing well financially. They should be able to ascertain the strengths and weaknesses of the business. Finally, they should be able to tell or communicate their results to the owners of the business, or to others allowed to receive this information.

Than from here we can conclude that accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities...

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