In the world of business, accounting plays an important role to aid in making critical decisions. The more complex the decision, the more detailed the information must be. Individuals and companies need different kinds of information to make their business decisions.
Let’s start with you as an individual. Why would you be interested in accounting? Accounting knowledge can help you with investing in the stock market, applying for a home loan, evaluating a potential job, balancing a checkbook, and starting a personal savings plan, among other things.
Managers within a business also use accounting information daily to make decisions, although most of these managers are not accountants. Some of the decisions they might make for which they will use accounting information are illustrated below :
AREAS IN WHICH MANAGERS USE ACCOUNTING INFORMATION
• Marketing (Which line of goods should the company emphasize?)
• Production (Should the company produce its goods in the United States or open a new plant in Mexico?)
• Research and Development (How much money should be set aside for new product development?)
• Sales (Should the company expand the advertising budget and take money away from some other part of the marketing budget?)
Without the proper accounting information these types of decisions would be very difficult, if not impossible, to make.
Bankers continually use accounting information. They are in the business of taking care of your money and making money with your money, so they absolutely must make good decisions. Accounting is fundamental to their decision-making process. Figure bellow looks at some of the decisions bankers make using accounting information.
AREAS IN WHICH BANKERS USE ACCOUNTING INFORMATION
• Granting loans to individuals and companies
• Investing clients’ money
• Setting interest rates
• Meeting federal regulations for protecting your money
Government agencies such as the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), and the Bureau of Alcohol, Tobacco, and Firearms (ATF) base their regulation enforcement and compliance on the accounting information they receive.
Accountability in Accounting
A business’s financial statements can also be of great interest to other members of the local or national community. Labor groups might be interested in what impact management’s financial decisions have on their unions and other employees. Local communities have an interest in how a business’s financial decisions (for example, layoffs or plant closings) will impact their citizens.
As the economy becomes more complex, so do the transactions within a business, and the process of reporting them to various users and making them understandable becomes more complex as well. A solid knowledge of accounting is helpful to individuals, managers, and business owners who are making their decisions based on the information accounting documents provide.