The study of accounting is considered very important by people anywhere. Information gathered through accounting is readily used in various situations from forecasting sales and spending, purchasing new equipment, to investing in a stock of a company. This is true because accounting information is pertinent when making decisions, particularly in the world of business. Accounting as a profession provides financial information that should be both relevant and reliable. These sets of information are useful in decision-making. The information presented by accounting undergoes a process. First, there is the identification of economic events. These economic events range from a grocery store sale to a payment of fees to a doctor. After these economic events happen, they are recorded, so that a history of the financial activities of an entity is provided. Thirdly, the information recorded about the economic events is given to parties that are interested in them. For example, this information may come in the form of a financial statement that is being presented to a possible investor.
Now, the information of economic activity is passed on to either external or internal users. External users would be people outside the company or entity that would like to be privy to the accounting information. Examples of these users are investors who want to be part of the company by buying shares and bonds of the company, taxing authorities to determine what tax liabilities a company has, and creditors like banks who use accounting information to decide if an entity can be trusted to lend money to. For these users, financial accounting is the provider of information. Financial statements are what external users usually use. Meanwhile, internal users are the people who make up the entity who use accounting information mainly for the improvement of their own company. For example, the managers of a company utilize accounting information to run the business and determine profit sharing and profitability. These users are being benefited by managerial accounting. Custom designed reports are what usually satisfy their need for information.
Both internal and external users benefit from the information given to them by accountants. As for accountants, they have a standardized manner of dong their work. They need these rules and standards so that all reports presented by one accountant can be understood by everyone, which should make it easier for both internal and external users of accounting information to understand these reports and make decisions for their company based on the standardized information. For example, when should a sale be recorded - when the customer receives the product, when the seller gives the goods, or when the seller gets the money? These issues are addressed by accountants adhering to a set of standards called the GAAP or the Generally Accepted Accounting Principles. Simply put, the GAAP is a set of standards that accountants must us when reporting economic events.
Adherence by accountants to the GAAP is usually made obvious when they make financial reports. In financial reports, companies make information about their economic activities available to external users and the public as a whole. In reporting gth finances of a company, accountant use financial statements. The four financial statements that are used for general purpose are the balance sheet, income statement, statement of changes in equity, and statement of cash flows. The balance sheet is a presentation of the assets, liabilities and owners equity of a company, all at a specific date. Meanwhile, an income statement tallies the revenues and expenses of a company, which results in either a net income or net loss, computed over a fixed period of time, usually a month, quarter, or year. Meanwhile, the changes in owners equity for a fixed period are shown in the statement of changes. Lastly, a cash flow statement is a report on the outflows or payments and inflows or receipts that a company makes.
Making a career out of accounting has been a popular option for people who want a stable and challenging career. But why, indeed, would someone want to make money out of this seemingly stressful endeavor? For one, accounting as a profession can be very high-paying. Banks and accounting firms employ a lot of accountants that are being paid handsomely no matter what the economic conditions are. Accounting graduates are said to earn the most in the entire lifespan of their careers. Accounting can also present a wide variety of career options - from auditing to consulting. Lastly, accountants eventually move on to higher executive positions such as being CEOs of corporations. Having an accounting background can definitely be a plus to a career person.