Overview of Accounting

Overview of Accounting

Introduction

One of the most significant tools, or pieces of information, available to managers today is business data such as financial statements and managerial reports. If there is any decision worth making in business, it is worth making it with the appropriate data to back it up and base it on. Oliver Wendell once said, пїЅThe significance of facts is more important than the facts themselves, and if accountants know the significance, people may even forget the factsпїЅ (Coleman, 1949, 1). One of the most valuable services that accounting can give to management is to help accomplish their objectives by preparing and interpreting essential data. Financial statements and managerial reports are most often used by accountants to share pertinent facts that may be useful when the time to make important decisions arrives (Coleman, 1949, 1).

Audiences, Purposes, and Natures of Financial Statements

Managers, CEOпїЅs, business owners, and other high end officials who make major decisions for their companies, investors, potential investors, creditors, anyone with a stake in the company, or anyone who whishes to put a stake in the company are the chief audience for financial statements and managerial reports. These reports provide information that is useful to present to these groups so they may make informed decisions regarding the company. The principal qualities that make this information useful are relevance, reliability, comparability, and consistency. The aim of this information is to introduce the aggregated results of a companyпїЅs transactions as they truly are, as opposed to how someone would want them to be (Beresford, 1990). Fudging the figures could mean the fall of the company, and is illegal besides; one need not look further than Enron for an example of that.

Some of the most useful managerial reports and financial statements include the using of statistical data to perform an analysis of accounting records. Profit and cost controls along with other operating statistics present vital opportunities to use this data so that managers and interested parties can make more informed decisions (Coleman, 1949, 3).

Managerial reports on trend analysis is also vital and useful in making decisions in which one chooses the direction one would like to steer the company. Trend analysis can illustrate company performance over time; it can also give one a good view of industry performance. Ratio analysis is another useful tool for managers to use in decision making. For example, the ratio between the industry performance trend and the company performance trend is helpful to look at to see how the company is doing against its competitors.

Ratios between trends are also helpful in identifying a companyпїЅs ability to earn a profit on sales; they can tell us how fast a company can turnover its inventory, long-term assets, or accounts receivable. Ratios are also good for measuring a companyпїЅs ability to pay off short term debt as it comes due. Ratios do not normally tell much of a story in a signal snap-shot. The story is told when ratios are used in conjunction with trend analysis over a period of several years. With this kind of information interested parties can get a better picture of how the company is doing and where it stands in its performance and profit margins (Block & Hirt, 2005, 11).

The