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Accounting Essay

2273 words - 9 pages

Accounting is the compilation of financial
information for use in making economic decisions.
BOOKKEEPING provides the basic accounting data, by
systematically recording such day-to-day financial
information as revenue from the sale of products or
services; expenses of business operations such as the cost
of merchandise sold; and overhead expenses such as rent,
wages, and so forth. Accounting principles determine which
financial events and transactions should be recorded in the
bookkeeper's ledgers, journals, and computer printouts.
The analysis and interpretation of these records is the
primary function of accounting. The various financial
statements produced by accountants then furnish business
and other types of organizations with the basis for their
financial planning and control, and provide other interested
parties (investors, the government) with information they
can use to make decisions about these organizations.
FUNCTIONS OF ACCOUNTING Accounting provides
informational access to a firm's financial condition for three
broad interest groups. First, it gives the firm's management
the information to evaluate financial performance over a
previous period of time, and to make decisions regarding
the future. Second, it informs the general public, and
particularly the firm's stockholders or those interested in
buying stock, about the financial status of the firm over the
previous quarter or year. Third, accounting provides
reports for the tax and regulatory departments of the
various levels of government. Accountants also perform
many of the same functions for agencies of the government,
nonprofit organizations, and other entities. Financial
Accounting Large corporations maintain their own internal
accounting departments; small firms may hire the services
of an outside accountant. In either case, the accountant's
principal duty is to gather the figures that relate to such
financial matters as profits, losses, costs, tax liabilities, and
other debts, and to present them to the firm's management
in a form that is logical and readily understood. For publicly
traded companies--those which offer stocks and bonds for
sale to the public--accountants also prepare regularly
published reports of interest to those outside the
organization who are concerned with the company's
financial condition: investors and potential investors,
creditors, and the general public. At the end of the fiscal
year, a summary, or annual report, is published, which must
include the "opinion" of an outside reviewer as to its
accuracy. The reviewer is an independent accountant called
an auditor. These reports represent, usually, the only
communication a company has with stockholders and other
outsiders. They are prepared in accordance with rules
known as Generally Accepted Accounting Principles,
which are established by professional organizations of
accountants. A standard set of financial statements is
always included in an annual report. The statements include
the...

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