This document discusses the importance of accounting data for businesses. Accounting data provides key information for managers and external users like investors and creditors. It helps with decision making, budgeting, financing, growth, control, forecasting, and crisis management. Accounting data is essential for evaluating performance, controlling operations, and ensuring the stability and success of businesses. Both internal managers and external stakeholders rely on accurate accounting information to make informed decisions.
This document discusses the importance of accounting data for businesses. Accounting data provides key information for managers and external users like investors and creditors. It helps with decision making, budgeting, financing, growth, control, forecasting, and crisis management. Accounting data is essential for evaluating performance, controlling operations, and ensuring the stability and success of businesses. Both internal managers and external stakeholders rely on accurate accounting information to make informed decisions.
This document discusses the importance of accounting data for businesses. Accounting data provides key information for managers and external users like investors and creditors. It helps with decision making, budgeting, financing, growth, control, forecasting, and crisis management. Accounting data is essential for evaluating performance, controlling operations, and ensuring the stability and success of businesses. Both internal managers and external stakeholders rely on accurate accounting information to make informed decisions.
This document discusses the importance of accounting data for businesses. Accounting data provides key information for managers and external users like investors and creditors. It helps with decision making, budgeting, financing, growth, control, forecasting, and crisis management. Accounting data is essential for evaluating performance, controlling operations, and ensuring the stability and success of businesses. Both internal managers and external stakeholders rely on accurate accounting information to make informed decisions.
Master Program of Business Administration Accounting Principles ACCT 130
The Importance of Accounting Data
By Tariq Marwan Hussein
Prepared for Dr. Zeyad Munawer January 18, 2014 1
Abstract This report aims to present and find the importance of accounting data that can help economic entities in dealing with daily operations and problems. In this report we will try to focus on the importance of accounting data for managements and for external non primary users of this data.
Introduction As any branch of science, accounting has been developing to meet the requirements of the economic and social progress. The rapid development in economic and social systems gave the accounting science a leading role in guiding economical facilities; provide them with necessary information in making decisions and planning for short and long term strategies that help facilities to achieve its goals. We can define accounting as collection, recording, processing and storing financial transaction occurred in a specified period of time. Thus, from this definition we can say that it is all about numbers. Knowing the numbers is very important to see we your business is standing, however it is not quite enough. Businesses need a way to deliver and communicate its numbers, and the way to do that is through financial statements. But, the questions are: What to do with these data? What are the benefits of using such a data? Accounting data is a fundamental source of internally certified information about the performance of all departments of any firm, and it provides, as a form of financial statements, valuable information about the financial position of any firm. These statements are designed to provide firms managements with reasonably accurate information to help them make short or long term decisions. There are many users that can benefit from these numbers and figures. In this report we will focus on the importance of accounting data for managers to evaluate the performance of their businesses and their employees, and the importance of these data for any external users as Investors, creditors.
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Users of Accounting Data The main objective of accounting is to provide information in reports or in statements which can be used by different kind if users. This kind of data can be used by two types of users, internal users and external users. Internals users or primary users are managers who use this data to plan, run and control business, in other words inside or internal users mean management. Employees use accounting data to assess the company in a profitable way. Owners of business use accounting data in analyzing the profitability of their investments in business and to determine any future action. External users or secondary users are outside people and organizations from outside company who want numbers and figures that define a business interested in. Investors for example are external users, who need accounting data in the form of statements and report to make a decision where they should invest their savings. Creditors use accounting data to measure the business financial health.
Role in Decision Making Accounting information is needed before making any decision by managers or by external users. All the recorded data about the transactions happened in business will be used to guide any future decision. It can help in the area of budgeting, investigating and forecasting. Managers need to be provided with an accurate financial data in order to strategically plan and move forward with actions. If financial data is faulty or wrong, it will be a disaster to business since decisions were made based on wrong information. External decision makers as investors and creditors also have an interest in how businesses performing financially. Accurate financial information in the form of reports and statements are essential to external users to make their decision. Accounting data provides management with data needed to determine whether a business is at a loss or a profit, how much debtors owe, liability to others and other financial information. Accounting data measures business transactions and it can help managers in the right direction. Basically accounting data is a tool for management to help make business decisions on a timely manner. The key is that accounting gave them the clue that something may not be going according to plan, playing an important role in business management.
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Financing Accounting data is used by company and l investors to determine funding needs for the organization. Businesses analyze revenue to determine how much money would be available to fund upcoming projects. If there is a gap in revenue, then you know that you need to search for funding. Investors and lenders look at companys assets and liabilities to determine if the company is a safe investment or not. Moreover, managers should use accounting information to see where the business is cash-wise and to plan for financing and other strategies for short-term and long-term planning.
Budgeting Information relevant to income, purchases, and investments is critical in creating the budget for the new financial year. The information gathered by the accounting department is used as a baseline to measure actual performance for the year and understand the basic costs of company operations. Budgeting, which is an estimate of income and expenses for a certain point in time, is a guide to ensure that a business is on track. Managers should be aware of budget numbers and how they compare to actual numbers. For example, if an expense number is almost over budget, managers can research the reason for the excessive expense in that and make decisions about that.
Growth Company growth is carefully considered in business plans. When the company plans its growth, it first looks at accounting data to determine its revenues and understand how the company spends money (Calculate Expenses). Accounting information is critical in determining how much the company can take on in liabilities and costs as it tries to make the right decisions on how to expand revenues by expanding target markets, expanding market shareetc.
Control, Forecast and Crisis Another function of accounting data is control, which includes checking on how business in a company is conducted and performed in comparison with the information provided by the recorded and stored accounting data. One of the most important functions of accounting is the function of forecast. This includes determining the trends of future processes, strategies and actions to take based on accounting information 4
relating to a period of time, for example, entering a n new market need a deep study of the financial position of business.
Accounting could be an instrument of recording data, which can only provide information about the problems existing into an economic entity or public institution, but without providing solutions. However it is important to remember that the first step of solving a problem is to be aware of the situation and to know its details. The information provided by the accounting records and financial statements take us to the root of the problems, helping the company to eliminate the causes of crisis and problems.
Conclusion
Accounting data provides valuable information to businesses control procedures that help to solve and avoid businesses problems which can result from many reasons. It is produced by the business employees and managers and then used by them again to evaluate performance and control business operations. Businesses have to provide accurate and reliable accounting information on their activities and operations and to pay more attention to accounting and financial data to assure stability of businesses.
The role of accounting and accounting data is beyond collecting and recording financial transaction incur within business, it is about interpreting theses data and information to provide solutions to develop, grow, increase profit and to find solutions for any problem may occur in businesses.
The economic instability makes strict and tough control on businesses operations a necessity to every business. Also, the success of any business relies in using accounting data in the correct time. Accounting data makes business adaptable to market changes by madding accurate and on time decision by business managers.
We can summarize the importance of accounting data by a quote for Theodore Roosevelt saying Do what you can, with what you have, where you are [1] . Reflecting this quote to business world, companies must use their best using all resources they have in their target markets, but deciding what you have of resources, when and where to use it can be done by using the accurate collected accounting data on time.
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References 1. Hogget, J.R., Edwards, L., & Medlin, J., Accounting in Australia, Fifth Edition, Chapter 1, Decision Making and the Role of Accounting.
2. Brownell, Peter. 1980. A working paper of THE ROLE OF ACCOUNTI NG DATA I N PERFORMANCE, EVALUATI ON, BUDGETARY PARTI CI PATI ON AND ORGANI ZATI ONAL EFFECTIVNESS, Massachusetts Institute of Technology.
3. Anthony G. Hopwood. J ournal of Accounting Research Vol. 10, Empirical Research in Accounting, 1972.
4. TOTH, ZSUZSANNA. P.H.D paper of The Current Role of Accounting I nformation System, Vol. 8. 2012.