What is Accounting & why is it needed....??
Before getting in to complex areas we should have enough understanding about the area.
Let's move on to a definition from one regulatory body.
American Institute of Certified Public Accountants (AICPA), defines accounting as "The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in parts at least of financial character and interpreting the results thereof."
So, simply look at the above underlined words and try to understand what we do in accounting.
And then, you may question what is the purpose of Accounting..???
The primary aim of Accounting is to provide information to the wide range of users of Financial Statements to make economic decisions.
So, next we need to identify who are the wide range of users of Financial Statements.
Wide Range of Users
↙↘
Internal users External Users
- Owners/Shareholders - Suppliers
- Management - Rivalry companies
- Employees - Customers
- Government
- Investors
When considering all above parties, we can say that above users/stakeholders have their interest on financial information due to the intention of maximizing their own self interest.
Let's see what their intentions are.
* Owners/ shareholders - As their intention is maximizing profits, they always keep their eye on financial information and use those financial information to decide whether to keep their investment/ further invest or withdraw their funds if the business is not performing well.
* Managers & employees - As their intention is acquiring higher rate of salaries, bonuses and other benefits, they keep interested their minds to focus on the performance of the business and financial information.
* Suppliers - We can identify supplier's intention as maintaining long term business relationship, supply goods on credit and to ensure the recoverability of the funds.
* Rivalry companies - They are interested on financial information of a considering company, due to the market competition and with the intention of achieving market capitalization.
* Customers - As an outside or external stakeholder, customers expect something back from the companies, such as fulfilling their corporate responsibility and campaigns etc..
* Government - They keep their eye of financial information of a considering entity due to earn their income through Income Taxes and as well as, if the considering industry is making continuous losses, provide subsidies to uplift the industry. On the other hand, if the industry is making supernatural profits, they keep eye on the business whether they violate the minimum prices or whether customers are charged high.
* Investors - Investors keep their eye on financial information due to the risk of their investment made,or others to decide whether they are going to invest on this company or withdraw their funds, Furthermore, financial information of a same industry gives information to investors whether bad performance of the firm due to a failure of the firm or the industry.
Please make sure that above list is not the exhaustive list of users of Financial information and there are more..
So, we discussed what is meant by Accounting and why it is needed through above paragraphs.
Don't forget to Like, Comment and Share if above details were important to you.
Let's meet with another interesting topic.
Thank you.
* Owners/ shareholders - As their intention is maximizing profits, they always keep their eye on financial information and use those financial information to decide whether to keep their investment/ further invest or withdraw their funds if the business is not performing well.
* Managers & employees - As their intention is acquiring higher rate of salaries, bonuses and other benefits, they keep interested their minds to focus on the performance of the business and financial information.
* Suppliers - We can identify supplier's intention as maintaining long term business relationship, supply goods on credit and to ensure the recoverability of the funds.
* Rivalry companies - They are interested on financial information of a considering company, due to the market competition and with the intention of achieving market capitalization.
* Customers - As an outside or external stakeholder, customers expect something back from the companies, such as fulfilling their corporate responsibility and campaigns etc..
* Government - They keep their eye of financial information of a considering entity due to earn their income through Income Taxes and as well as, if the considering industry is making continuous losses, provide subsidies to uplift the industry. On the other hand, if the industry is making supernatural profits, they keep eye on the business whether they violate the minimum prices or whether customers are charged high.
* Investors - Investors keep their eye on financial information due to the risk of their investment made,or others to decide whether they are going to invest on this company or withdraw their funds, Furthermore, financial information of a same industry gives information to investors whether bad performance of the firm due to a failure of the firm or the industry.
Please make sure that above list is not the exhaustive list of users of Financial information and there are more..
So, we discussed what is meant by Accounting and why it is needed through above paragraphs.
Don't forget to Like, Comment and Share if above details were important to you.
Let's meet with another interesting topic.
Thank you.
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