explain the importance of financial information
Answers
THE IMPORTANCE OF FINANCIAL INFORMATION.
Financial information is the HEART OF BUSINESS MANAGEMENT.
Most of us know almost nothing about accounting from experience.
However, you have to know something about accounting if you want to understand business.
It is almost impossible to run a business effectively without being able to read, understand, and analyze accounting reports and financial statements.
Accounting reports and financial statements are as revealing of the HEALTH OF A BUSINESS as pulse rate and blood pressure reports are in revealing the health of a person.
WHAT IS ACCOUNTING?
ACCOUNTING is the recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties with the information they need to make good decisions.
FINANCIAL TRANSACTIONS include buying and selling goods and services, acquiring insurance, using supplies, and paying taxes.
An ACCOUNTING SYSTEM is the methods used to record and summarize accounting data into reports.
PURPOSES OF ACCOUNTING:
To help managers evaluate the financial condition and the operating performance of the firm so they may make better decisions.
To report financial information to people outside the firm such as owners, suppliers, and the government.
Accounting is the measurement and reporting of financial information to various users regarding the economic activities of the firm.
AREAS OF ACCOUNTING.
Accounting has been called the LANGUAGE OF BUSINESS, but it also is the language used to report financial information about nonprofit organizations.
MANAGERIAL ACCOUNTING.
MANAGERIAL ACCOUNTING is used to provide information and analyses to managers within the organization to assist them in decision making.
Managerial accountants:
MEASURING AND REPORT COSTS of production, marketing, and other functions.
PREPARING BUDGETS.
Checking whether or not units are STAYING WITHIN THEIR BUDGETS.
DESIGNING STRATEGIES TO MINIMIZE TAXES.
A CERTIFIED MANAGEMENT ACCOUNTANT is a professional accountant who has met certain educational and experience requirements and been certified by the Institute of Certified Management Accountants.
FINANCIAL ACCOUNTING.
The information provided by FINANCIAL ACCOUNTING is used by people OUTSIDE of the organization (owners and prospective owners, creditors and lenders, employee unions, customers, governmental units, and the general public.)
These external users are interested in the organization’s profits and other financial information.
Much of this information is contained in the company’s ANNUAL REPORT, a yearly statement of the financial condition and progress of an organization covering a one-year period.
It is critical for firms to keep accurate financial information.
A PRIVATE ACCOUNTANT is one who works for a SINGLE COMPANY OR ORGANIZATION.
A PUBLIC ACCOUNTANT is one who provides services for a fee to a NUMBER OF COMPANIES.
PUBLIC ACCOUNTANTS help firms by:
Designing an accounting system for a firm.
Helping select the correct computer and software to run the system.
Analyzing the financial strength of an organization.
The accounting profession assures users of financial information that financial reports of organizations are accurate.
The independent Financial Accounting Standards Board (FASB) defines what are generally accepted accounting principles (GAAP) that accountants must follow.
If financial reports are prepared "in accordance with GAAP," users know the information is reported professionally.
A CERTIFIED PUBLIC ACCOUNTANT (CPA) is an accountant who has passed a series of examinations established by the American Institute of Certified Public Accountant (AICPA) and met the state’s requirements for education and experience.
it's help us to know what was our financial condition of our business.. is we earning profit or getting more Loss.. by checking financial information we know about this