Accounting Is Related With Collecting Information Accounting Essay

Category: Accounting

Accounting is related with collecting information, analyse the information and communicating to financial information. This information's are very useful for decision making and planning for the business. This information is also useful for the people who are in the controlling position of the business. As an example the managers of the business organisation need the accounting information to :

''Develop new product or services (for an example a video game manufacturer developing new range of product for the gaming console)

Increase or decrease the price or quantity of existing products or services( for an example apple company is changing the phone prices)

Borrow money to help finance the business ( for an example TESCO is willing to increase their stores number in UK )

Increase or decrease the operating capacity of the business( for an example a insurance company is increasing their operating capacity as the insurance company expanding their business)

Change the method of purchasing, production or distribution.( for an example Wal-Mart is getting their production supplies from overseas suppliers)'' (MClANEY.E and Atrill.P, 2010: 2)

This decision will reflect to the financial consequence of the business. Managers work with the accounting information for a particular business and they are significant user of accounting information. There are some other users of the accounting information. This other users are from outside of the business. They need the information to:

''Invest or disinvest of the ownership of the business

Lend money to the business

Offer credit facilities

Enter into contracts for the purchase of product or services.'' (MClANEY.E and Atrill.P, 2010: 2)

The purpose of accounting is to give solid information which is the base of a decision and the decision is taken by the internal and external users of the business.

Finance also helps the decision makers. Finance is the way in which the fund raised and invested in a business. Finance is conceder the heart of a business. Without the finance a business cannot exist, so from the owners and lender the funds and investment are raised and then the funds are invested for the buying of equipment, premises, inventories and for other things. These attempts are taking to make the owners and the business wealthier. Fund should be raised appropriately. The relevant to the exact needs of the business and understanding of finance helps to identify:

''The main forms of finance available

The cost and benefits of each form of finance

The risk associated with each form of finance

The role of financial markets in supplying finance.'' (MClANEY.E and Atrill.P, 2010: 2)

When the funds are raised then it should be invested in the ways which will return good or worth good for the business. Good understanding of finance helps to evaluate:

''The returns form of investment

The risk associated with investment.'' (MClANEY.E and Atrill.P, 2010: 3)

For the good of the business the large amounts of fund and investment for long period of time should be raise. Then the making of financing and investment decision can effect strongly of the fortunes of the business.

Accounting Information:

In a business organisation the users of the organisation needs the accounting information to observe the economic condition of the business. For the accounting information they can make decision for the future of the business and they can make the financial report for a certain period of time. Accounting information is the base of decision making. The accounting information systems have certain features these are similar to all information system which is related to a business. Information are:

''Identifying and capturing relevant information

Recording the information collected in a systematic manner

Analysing and interpreting the information collected

Reporting the information in a manner that suits the needs of user.''(MClANEY.E and Atrill.P, 2010: 11)

Usefulness of accounting information:

Characteristics that influence the Usefulness of the accounting information which is shown below:

Relevance

''The other primary quality decision-makers rely on is relevancy. Financial statements are relevant in terms of date and information shared. A reputable auditing firm audits all three statements. In addition to the public relations issues involved in publishing inaccurate or irrelevant information, investors may also take inaccurate or irrelevant information as a sign of company incompetence. The Securities and Exchange Commission, the main regulators of the industry, may even issue an investigation of the company. This could send the stock down and will certainly cost more in legal fees. This is why decision-makers feel they can count on the relevance of accounting information.''(Collins.J,2011)

Reliability

''The reliability of financial statements is what financial managers and decision-makers count on. For instance, the balance sheet equation is assets are equal to liabilities plus stockholders' equity. Another way to say this is that everything a company owns the company pays for with debt, also called credit, or cash. The income statement equation is income is equal to sales minus costs, and the basis of the cash flow statement is the reliability of cash flows coming from and to operational, financing and investing activities.'' (Collins.J,2011)

Comparability

''this quality will enable users to identify changes in the business over time (for example, the trend in sales revenue over the past five years). It will also help them to evaluate the performance of the business in relation to similar businesses. Comparability is achieved by treating items that are basically the same in the same manner for accounting purposes. Comparability may also be enhanced by making clear the policies that have been adopted in measuring and presenting the information.''(MClANEY.E and Atrill.P, 2010: 8)

Understandability

''Accounting reports should be expressed as clearly as possible and should be understood by those at whom the information is aimed.'' (MClANEY.E and Atrill.P, 2010: 8)

INTERNAL USERS OF FINANCIAL INFORMATION:

Internal users of accounting information are those individuals inside a company who plan, organize, and run the business. These include marketing managers, production supervisors, finance directors, and company officers. In running a business, internal users must answer many important questions.

To answer these and other questions, internal users need detailed information on a timely basis. Internal reports to help users make decisions about their companies. Examples are financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.