Accounting: Definition by Investorwords.Com

Topics: Investment, Finance, Management Pages: 2 (656 words) Published: March 3, 2011
Accounting is defined by as “the systematic recording, reporting, and analysis of financial transactions of a business. The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit.” Accounting is mainly used in order to provide information about an organisations financial performance such as income less expenditure, i.e. profit. This information is used by management levels for future decision making and in order for the management to know how much they are selling, the accounts also help the within the company to pick out any areas within the company which are not making a profit. Accounting can help organisations decide on many things like whether to decrease or increase stock levels, whether to sell assets or purchase new ones. Financial accounts can be used to benefit the company by providing information to outsiders in order to secure funding, such as financial institutions for a business loan or in the form of grants for buying new assets or creating new employment opportunities. This information will help lenders determine whether loans or interests will be paid when they are due. In a limited company or a corporation financial accounts are filed at least annually for the shareholders to view in order to keep a track of their investments. The information needed by lenders is the cash flow, the security of assests and the investment requirements. The accounts can also be provided to potential investors, as they would want to see if they are making a good investment by joining the organisation, and also when they join they will still want to see if they are going to get a good return for their investment and if they should continue to invest in the business. An...
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