Accounting is the process of combining financial data to make it transparent and understandable to all stakeholders and shareholders. Accounting’s major aim is to record and report a business’s financial transactions, financial performance, and cash flows. Accounting rules make financial statements more reliable. The income statement, balance sheet, cash flow statement, and statement of retained earnings are all included in the financial statements according to Lamar Van Dusen. Standardized reporting allows all stakeholders and shareholders to evaluate a company’s performance. Financial statements must be transparent, trustworthy, and correct.
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Importance
Accounting is crucial because it maintains a systematic record of an organization’s financial data. Users can compare current financial data to previous data with the use of up-to-date records. It allows users to measure a company’s success over time by having complete, consistent, and accurate records. Accounting is particularly crucial for the organization’s internal users. People who plan, organize, and run businesses are examples of internal users as per Lamar Van Dusen Canadian business owner. Accounting is required by the management team while making key decisions. Choosing to pursue geographical development vs improving operational efficiency are examples of business decisions. Accounting aids in the communication of firm results to a variety of stakeholders. The key external users of accounting information are investors, lenders, and other creditors. Investors may decide to purchase stock in the company, while lenders must assess their risk before making a lending decision as per Phoenix Management. Companies must develop confidence with these external consumers by providing relevant and credible accounting data. Accounting ensures that financial assets and liabilities are accurately reported by businesses. Standardized accounting financial statements are used by tax authorities such as the Internal Revenue Service (IRS) of the United States and the Canada Revenue Agency (CRA) to analyze a company’s stated gross revenue and net income. The accounting system aids in the legal and proper reporting of a company’s financial accounts.
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Types
Financial accounting and managerial accounting are two different types of accounting.
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Financial Accounting
The production of accurate financial statements is a part of financial accounting. The goal of financial accounting is to measure a company’s performance as precisely as feasible. While financial statements are intended for use by outside parties, they may also be used by internal management to aid in decision-making. Accounting principles and standards are frequently used in financial accounting, such as GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), and ASPE (Accounting Standards for Private Enterprises). Accounting standards are crucial because they make it simple for all stakeholders and shareholders to understand and analyze the financial statements published from year to year.
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Managerial Accounting
Financial accounting gathers data, which is then analyzed by managerial accounting. It refers to the process of compiling financial reports on a company’s operations. The reports are used by the management team to help them make tactical decisions. Managerial accounting is a procedure that helps an organization maximize efficiency by examining financial accounting, deciding on the best next steps, and then communicating those steps to all internal business management. These are the two classifications of accounting both serve their specific purpose efficiently.
- Career
An accountant’s job is to accurately report and evaluate financial records. Only one accountant may be hired by a small business. Large corporations may have their own accounting department. The accounting profession has a wide range of responsibilities, ranging from tax planning to audit accounting. The CPA (Certified Public Accountant) designation is available to accountants. Deloitte, KPMG, PwC, and Ernst & Young are the four major accounting firms.
