accounting essay samples

accounting essay samples

The Importance of Accounting in Business

1. Introduction

This notion is supported by most financial and microeconomics, which attributes the economy’s growth to activities that expand the capital stock. Growth in a business is not widely understood by business owners, let alone financial analysts. These two are excluded from the understanding of management and corporate governance. Pragmatically, most corporate entities do not yet see themselves as wealth creators. The CEO of Ameritech Corp., Richard Notebaert, explains to the financial community that generally, the company is viewed as a low-return model. Accounting is a simple proposition of recognizing what is right (the individual) and valuing human endeavor, empowering the individual business creators, people whose energy and genius drove them home from global marketplaces. Various business-building teams are complementary and incompatible, and it generally argues the collective and stand-alone relations of the segments, which run the business globally. Accounting is the most powerful trading mechanism for ideas. Accounting exposes these connections, creating value distinctions within and among the teams.

This essay is a critical review of the significant role of accounting in business development. It describes the importance of accounting, how accounting information is generated and accumulated, and the methods by which it is disseminated and exchanged. This essay also communicates the economic importance of accounting in the context of business development, specifically how it relates to business’s value creation. Accounting systems must provide complete, accurate, and timely information that is used for various purposes, many of which have economic consequences. This is vital to the efficient allocation of scarce resources. The paper also explains how accounting can be a trading mechanism for ideas that help businesses to see value creation through growth.

2. Role of Accounting in Business Decision Making

The shareholders cannot be precluded at law from gaining access to the firm’s financial information. They too hold the opposite right i.e. the right to buy shares. Therefore, they too have the right track record of the company which they are planning to invest in the foreseen future. Accounting reports are the agents of shareholders who work for them and produce both current and in expectation information available. These individuals work away from the company and make decisions such as whether or not to purchase or sell the shares that they own in the company based on the signals communicated to them through accounting reports.

This is the key role of accounting: to be a communicator of financial information about an organization or firm and its business operations to a variety of different user groups. Financial statements are the financial statements in accounting which show how the financial decisions and activities of the firm are communicated to its various user groups. These financial decisions could be investment decisions concerning which long-term investments should be embarked upon, financing and dividend decisions, as well as working capital management decisions required by the firm’s operations over time. These user groups which accounting are meant to communicate to fall into two broad categories. The two user groups are: internal and external users. Those user groups which hold one or more fraction of the company’s shares are classified as shareholders as well as external users. These individuals and groups are the people who are outside of the management within an organization or firm. For accountability purposes, these are the financial subordinates.

3. Benefits of Proper Accounting Practices

Proper accounting records can demonstrate a business’s economic, financial, and decision-making abilities and competitive systems to its respective customers. Records of sales, income, inventory, and receivables can indicate the company’s strength and can become a business strategy for selling goods. The company’s accomplishments and financial performance could become strong public opinion capital. The company records its financial performance in external systems such as tax and government payment. These records may permit approval and improved public confidence in commercial companies. As an example, public confidence in a company that pays taxes on a regular basis can grow and lead to increased investment and economic development. Companies benefit from accounting records. It records business activities and performance, playing a significant position in ensuring that the company gets the trust of its shareholders and consumers in its community. Maintaining private records requires certain types of business and mass transactions. Several business operations could have been made, such as recording sales entries, purchase records, flexible assets, flexible liabilities, and stock operate documents by a business or corporation.

From keeping track of a company’s inventory to making salary payments to employees, building a business requires functions for monitoring transactions, including accounting. As the lifeblood of a company, inaccurate control of financial flow can cause a variety of business issues, such as budgeting and poor decision making. Government and legal consequences can also have an impact on legal issues. Many examples show the importance of accounting in conducting business. They act as a bridge between the company and the financial community. Prospective investors, creditors, and other financial market players are heavily involved in accounting information about the company before making investment decisions. The records of the company’s performances and financial conditions can be used to assess management’s ability to manage the business. Therefore, sound accounting records are essential for a business and useful for economic factors.

4. Key Accounting Principles and Concepts

The general assumptions include the business entity assumptions, which recognizes that a business is treated as separate from its owner. Another one is the time period assumption states that a business, due to the continuing economic activity, can be partitioned into short time allocations such as months and years. Monetary unit assumption, on the other hand, recognizes that the dollar is the most effective means and stable form of accounting measurement. Going concern assumption states that businesses operate indefinitely, unless explicit and known conditions say otherwise.

It is aptly named as the “Yes, but…” principle as it is often the response of most stakeholders—be it the management, the owners, the regulators, and to a certain extent the accounting professionals. No, this does not mean that most are cynics, however, the framework of accounting presents an eternal “yes” but always accompanied by an “if” premise stating “yes, this is how it looks like as per your seeing it at the moment but it should be so and so for reasons both voluntary and required by accounting principles and standards”.

Accounting follows a certain framework of core classes as well as the underlying basic accounting concepts and principles. Highly technical and focused only for the number-loving individuals, this can often be the general opinion on accounting and financial management. Though, like anything in business, it has the underlying functions of simplifying a company’s operations and processes, providing a complete look of how things are shaping up rather than crunching numbers, and allows even the non-accountant to enjoy better participation in business growth and operational decisions.

5. Conclusion

Accounting is considered an art. In the real world, business growth is measured in monetary terms. Without accounting, a business investor, creditor, and employee could lack the information needed to evaluate the financial performance of a business. Research has demonstrated that the understanding of accounting is essential for the financial success of businesses. Despite the importance of accounting, small business owners, non-accounting managers, and students undervalue and underappreciate accounting. Small business owners consider accounting insignificant and time-wasting. This argument is related to a false understanding of accounting. Small business owners and non-accounting managers are not professionals in accounting. Consequently, they find it difficult to accept accounting and are overwhelmed by it. Eventually, they base their judgments about it on false misunderstandings that have led them to undervalue and underappreciate accounting.

Accounting is relevant for developing business strategies, protecting assets, and reporting on the income and cash flow of businesses. The usefulness of accounting is also crucial when dealing with creditors and current or potential investors. Accounting plays an important role in all facets of the business process. While not every employee is expected to be an accountant, everyone in the business should have an understanding of how accounting works. Having an accounting function in-house, regardless of the size of the company, is crucial for the business. Actually, both creditors and investors are more interested in investing in companies that provide financial reports. To obtain the financial reports that are generated by accounting, creditors and investors should follow basic accounting standards that are referred to as generally accepted accounting principles. Therefore, accounting is also referred to as the language of business.