Introduction
This essay is based on ‘Accounting’ and is a very widely used term. It is a language of Business and every accountant is aware of its importance in today’s society. Accounting has gone through various changes throughout the history. Technology and innovation have played an active role in changing the processes of accounting into more efficient and easy ones. The emergence of internet and information technology have really made the work of accountants easy (Brown).
Definition of Accounting
Accounting is a term that is widely used in business and it is defined as ‘a science of information that manipulates, collect, record, classify and reports the financial data to be used by the businesses and individuals’ (Biondi, Yuri & Stefano). It is an instrument that is used by the firms and businesses to measure their financial stability and performance. The overall wealth, liquidity, profitability of the business is determined by accounting (Brown).In the absence of accounting, businesses won’t be able to measure their financial performance, their overall financial position and won’t be able to make decisions for short and long term (Biondi, Yuri & Stefano). Accounting is a very broad concept as it includes profit reinvestment, budgeting, marketing activities forecasting, growth of the company, development and research. It is one of the most respected and oldest subjects in the world (Brown).We can see accounting used everywhere whether it is a small shop, a large business, hospitals, media, government etc. The major components of accounting are liabilities, assets and capital (Biondi, Yuri & Stefano).
Background
Accounting is the language of the business as it helped to interpret the financial information. The accountant are the professionals that use the accounting information to help in the decision making process of the firm. The businesses most trusted advisor is an accountant and the auditor (Brown). The enhancement in technology have increased the accuracy and efficiency of the accounting processes. The accounting software’s such as Peach Tree, Quick books have made it easier to analyze the values of statistics in the shortest time possible. The study of accounting have been transformed into a whole new level since the start of the twenty first century (Biondi, Yuri & Stefano). The accounting software and computers have digitalized the process of accounting which was done manually in the early ages. One of the most commonly used software is Microsoft Excel which is a spreadsheet that is electronic. This has removed the need for calculators, pencils, ledgers and additional machines. There is a lesser margin of error and the job for the accountants is less hectic. On the other hand, the accountant can also perform forecasting and statistical analysis using software’s such as SPSS (Biondi, Yuri & Stefano).
The accounting software’s such as Peach Tree and Quick Books help the accountant to prepare financial statements electronically. In the early ages, accounting was done using a calculating tool known as ‘Abacus’. But now the technology is so advanced that it has eliminated the bigger cruncher number sitting. Accountants can calculate huge amounts and complex data within a short span using these advanced software’s and tools (Biondi, Yuri & Stefano). The extranet, internet and E-Business have become an integral part in the world of accounting. E-Business is used by today’s professionals of accounting as they know the importance of internet. The internet and IT helps the accountant to execute the major processes of businesses typical in the firm (Biondi, Yuri & Stefano).
Thesis Statement
The thesis statement is that Accounting plays a crucial role in the short and long term business decisions of the company. The thesis statement will be supported by the online journals, articles and scholarly sources. Accounting consists of different branches which includes financial accounting, managerial and cost accounting, Tax, audit, Project, Governmental and Social accounting. The core financial statements commonly used in accounting are Income Statement, Balance Sheet and Cash Flow Statement (Biondi, Yuri & Stefano). These three statements are the fundamental and heart of accounting. Without these statements, accounting information cannot be systematized (Biondi, Yuri & Stefano). Thus, this essay will support the thesis statement and shows the readers that how these financial statements are crucial and can aid in the decision making of the business.
Discussion
The role of accounting, which existed in a planned economy, causes the social character of the property, needs a centralized management of the economy and reduced mainly to identify deviations from the prescribed models of economic behavior of enterprises. The main users of financial information were sectorial ministries and departments, as well as other public authorities (statistical planning, etc.) (Baimukhanova). In a market economy and move to a company is a separate element of the economic system interacts with parterres business, the budgets of different levels, the owners of capital and other subjects, during which they raise financial relationships (Baimukhanova).
There is a need of financial management firm, i.e. develop a specific set of principles, methods and techniques of regulation of financial resources to ensure the achievement of tactical and strategic goals of the organization (Brown). Object management are financial resources of the enterprise, in particular their size, sources of their formation, and relations in the process of formation and use of financial resources of the firm. Management results are shown in the cash flows (magnitude and timing), taking place between now and budgets, capital owners, business partners and other market agents (Baimukhanova).
Role of Balance Sheet in Business Decision Making
Balance Sheet are used by external users to evaluate the effectiveness of the organization, as well as an economic analysis of the organization. However, reporting is necessary for the subsequent planning. Reporting should be accurate, timely. It must be ensured comparability of reported results with the data for previous periods (Baimukhanova). The transition to a market economy has caused the emergence of various forms of ownership and entrepreneurship. Recreates the circulation of bills, there were shares and other securities, changed the principles of finance and credit, extended range operations with foreign currency. In this regard, there is an urgent need to change the existing system in many years of accounting and reporting in our country with the experience of leading Western countries and international standards (Zadek).
In a centrally-planned economy, accounting information is collected, compiled and was previously used mainly for business cards, you have to use it to attract investors and partners, to inform the founders and shareholders of the stability of the financial position and the immediate prospects of the enterprise (Zadek). Information of financial statements does not use external users interested individuals and legal entities: suppliers, customers, current and potential lenders, credit institutions, tax and statistical agencies as well as for economic analysis in the organization. As a result of accounting reports contribute to the awareness of employees about management plans and policies that encourage working in the organization to act in accordance with the overall goals and objectives (Brown).
Claims and Solutions
Owners analyze financial statements to improve return on capital, ensure the stability of the position of the firm. Lenders and investors analyze financial statements in order to minimize their risks on loans and deposits. You can firmly say that the quality of decisions depends entirely on the quality of the analytical justification of the decision. The main and in some cases the only source of information and financial performance of the business partner is the financial statements which went public (Brown). Financial Statements of an entity in a market economy is based on a generalization of the financial records and an information link between the company and society, and business partners – users of information about the activities of the enterprise.
The subjects of the analysis are the stakeholders in the enterprise users of information. The first group of users are the owners of the enterprise, lenders (banks), Suppliers, customers (buyers), the tax authorities, the staff and the management of the enterprise. Each subject of analysis examines the information based on their interests (Zadek). Thus, owners need to determine the increase or decrease in the proportion of equity capital and evaluate the effectiveness of the use of resources management of the enterprise; creditors and suppliers whether to extend credit, lending conditions, guarantees repayment of the loan; potential owners and creditors book the room in the company of their capital and so on. It should be noted that only the management (administration) of the enterprise may deepen the analysis of reporting data using cost accounting under management analysis conducted for the purpose of management. The second group of users of financial statements is a subject of analysis, which, although not directly interested in the enterprise, but should protect the interests of the first group of users reporting (Harvey, Edward & Peter).
Support
The basis for management decisions in the enterprise is the information of an economic nature. The decision making process can be divided into three phases: planning and forecasting, operational management, control (financial analysis) of the company (Zadek). Decisions are made not only administration of the organization, but also other external economic information users (stakeholders outside the company and in need of information for decision-making in relation to the company). Internal users operate the account information, external – these financial statements. Those and other data generated in the course of the accounting company (Godfrey).
Usually accountant specializes in the following areas; Management Accounting (provide guidance, the company with the necessary information for management decision making. To enhance the effectiveness of the company and to prevent theft accountant shall establish a system of internal control (Godfrey). It has been involved in the planning of profit enterprise, budgeting and control for costs); Accounting activities (control of workflow, correctness dockings; preparation of reports); Audit activities (Report on the veracity of financial statements, setting the reliability of the inventory, inspection of internal control systems, real Debt, primary docking of relevant organizations accounting firm with the generally accepted); Taxation (tax compliance, preparation of tax returns and the development of recommendations to reduce tax deductions on the budget Period) (Godfrey).
Counter Arguments
The essence of the balance sheet is shown in this essay. It is part of the accounting method. The balance sheet is a form of periodic and annual reporting. Among other terms of accounting method dual purpose is characteristic only for the balance sheet. This duality is not only the essence of the law of the unity of opposites, but also the basis for assessing the financial position of the firm (Kimmel). In order to understand the greater availability of economic essence of objects which are recognized in separate articles in the balance given their grouping (Godfrey). Potential investors and lenders examine and evaluate the content and the relationship between the individual groups and subgroups of assets and liabilities and their relationship to each other. Balance Sheet is the most informative form that you can make informed management decisions. Knowing how to read a balance content knowledge of each of its articles, the method of its assessment, the role in the enterprise, links to other articles, the characteristics of these changes for business economics (Godfrey).
Conclusion
On the basis of the above arguments, it can be concluded that the main source for the analysis of the financial condition of the company and making the right management decisions is the balance sheet (Godfrey). Balance sheet is a systemic model generally reflecting the cycle of the enterprise and financial relations in which the company enters in this circuit. Contemporary content assets and liabilities are dedicated to providing information to its users (Harvey, Edward & Peter). Hence the high degree of analytic articles that reveal the state of receivables and payables, net worth and individual types of reserves, formed at the expense of current costs or profits of the enterprise (Kimmel). It is important to guide enterprises to select the desired style and methods of production management and finance, strategy and tactics of work, taking into account the current economic situation which will allow the company to survive, to survive and thrive in a difficult period of economic reforms.
Work Cited
Baimukhanova, Sariya Baimukhanovna. “The role and importance of accounting information for providing economic stability and intensive economic growth.” Life Sci J 11.4s (2014): 63-67.
Biondi, Yuri, and Stefano Zambon, eds. Accounting and business economics: Insights from national traditions. Routledge, 2013.
Brown, Richard, ed. A history of accounting and accountants. Routledge, 2014.
Godfrey, Jayne, et al. Accounting theory. John Wiley and Sons, 2010.
Harvey, David, Edward McLaney, and Peter Atrill. Accounting for business. Routledge, 2013.
Horngren, Charles T. Cost Accounting: A Managerial Emphasis, 13/e. Pearson Education India, 2012.
Kimmel, Paul D., Jerry J. Weygandt, and Donald E. Kieso. Financial accounting: Tools for business decision making. John Wiley & Sons, 2010.
Zadek, Simon, Richard Evans, and Peter Pruzan, eds. Building Corporate Accountability: Emerging Practice in Social and Ethical Accounting and Auditing. Routledge, 2013.
