THE ROLE OF ACCOUNTING IN BUSINESS
Accounting is a part of your daily life, it is not a branch of Mathematics, however, you need to be able to add, subtract, multiply and divide, otherwise, you would not know how much money you had with you, how much you would have spent or whether the change you received was correct. Accounting is a system used by businesses to track financial information. Businesses then analyze and use the information to make business decisions. Accounting uses a double-entry method where accountants record transactions using debits and credits to individual accounts. The individual accounts are all part of the general ledger, which is the place where a business keeps all accounts individually with balances. An assortment of people then uses this information. Accounting can take place either manually or with computers using accounting information system software. Accounting within firms has developed in three principal directions: first in fulfilling the information needs of external stakeholders, second, in providing information to management to assist them in their decision-making and other activities and third the auditing.
The externally oriented branch of the subject is called ‘financial accounting’ where statements of financial performance over a period of time are produced. They allow a business to accurately determine the profit or loss from doing business for a given amount of time. This allows a business to accurately determine what state and federal income taxes are due annually. Accounting is information that is used by potential investors to decide whether or not to buy stocks and bonds in the firm. Today accounting practices are standard to ensure compliance to all state and federal laws and to avoid fraud. The principles today are referred to as Generally Accepted Accounting Principles (GAAP). Some of the basic accounting principles as taught today include the balance sheet equation of assets = liabilities + stockholder's...
Please join StudyMode to read the full document