Business

Accounting: Importance of Financial Statements

Latron Moore

ACC: 205

Brenda Forde

September 27, 2010

Accounting: Importance of Financial Statements

Accounting. What is accounting? “Accounting is the information system that measures business activity, processes the data into reports, and communicates the results to decision makers. Accounting is “the language of business.” The better you understand the language, the better you can manage the business (Horngren & Harrison, 2007).” The main objectives of accounting are to maintain records of the business, to calculate profit or loss in the business, to know the businesses financial position and to provide financial information to various users. Accounting means a system of recording, verifying and reporting the transactions of the company into the books of accounts(ledgers). These transactions are categorized as assets, liabilities, revenues, expenses and shareholders' equity in the books of accounts. An important and key backbone to acquiring or obtaining this type of information in accounting, are through a businesses’ financial statements. Financial statements are documents that record, The purpose of the text below, is to give insight on why accurate financial statements are important for outside business interest. Financial statements are important to a business and its outsiders. Therefore accurately recording, reporting, and producing those statements, help’s ones business internally and externally, and helps acquire the knowledge on whether a business is producing positive or negative results, which is required by investors, creditors, tax authorities, etc... for future contributions.

“Accounting can be divided into two fields, financial accounting and management accounting. Management accounting focuses on information for internal decision making by the company’s manger, while financial accounting provides information for people outside the company,...