The Purpose of Accounting

The purpose of accounting

Accounting is likened to learning a foreign language. One must learn to understand the message being conveyed. Businesses speak this language through people trained to interpret, understand and communicate its message to others. These people are known as accountants. Accountants are schooled in interpreting this language of numbers into a form that is understandable and usable. The purpose of accounting is to communicate, through all aspects of a business, all relevant financial information needed to manage that business. In other words accounting identifies, records and communicates the financial activity of a company (Weygandt, 2008).

Internal and External Users

Companies consist of people inside and outside its walls, also known as internal and external users, rely on the information provided through the accounting department. Internal users are by default those working inside of the business itself. Human resources who deal with employee salaries and benefit packages, managers who place product orders and manage employee productivity, marketing departments who determine product pricing through supply and demand, and finance departments who monitor stockholder dividends (Weygandt, 2008).Outside of the business itself there are those termed external users. These users take the form of investors who may want to expand their portfolio, creditors who have materials purchased on time, and lenders who lend money for business expansion. All of these users have one thing in common. They all depend on the financial soundness of the accounting records being kept. Within the financial records one would find differing statements that all depend on one another to paint a complete picture of the financial health of a company.

The Four Financial Statements

We will begin with the income statement. The income statement provides a look at revenues and expenses for a specific period that shows the net income or net loss. The income statement does...