It is popularly believed that accounting is the language of business. The primary purpose of accounting is to provide basis for financial decision making. Whether a decision is made by the owners, management, creditors or union leaders or others who have an interest in the financial condition of an enterprise the decision in any case becomes more convincing with the help of accounting and ultimately financial information.
Economic events are measured and communicated through accounting by nearly everyone, daily, and it is not practiced only by professional accountants.
Accounting information is the most relevant for making various decisions.
Basically there are 3 types of accounting information, financial accounting, tax accounting and management accounting.
Financial accounting helps the investors and creditors to determine as to where should they place their scarce resources, such decisions also determine as to which companies or industries will receive the investments and which will not. Placement of these scarce resources contributes to the growth of the company or the industry.
As the name suggests tax accounting deals with preparation of tax returns based on financial information.
Managerial accounting is too often required by the management to run the business. It is required in setting goals, measuring performance of individuals and departments, deciding as to a new product should be added to the production line or not. Management accounting virtually assists in making all types of managerial decisions.
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