Accounting: The Language of Business

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Accounting is a vital component of every business. Many businesses rely on accounting information to make decisions everyday within an organization. Accounting information discloses how valuable a company is. Many people think accounting is just generating spreadsheets, but it actually entails much more. Accounting consists of evaluating business activities, processing data into reports, and communicating results so that management can make decisions.

Figure 1 shows how each aspect of a business relies on the others to continue to function properly. A manager cannot make decisions without accounting information, and accounting information cannot exist if transactions do not occur. Accounting is so significant because it summarizes the financial condition of a company, which is done through financial statements. Financial statements also provide insight about whether or not the management of a company is participating in ethical behavior.
Types of Accounting
The two main types of accounting are financial accounting and managerial accounting. Financial accounting presents information to external users such as creditors, investors, the government and the public. Managerial Accounting provides information for internal users, such as top management in the form of budgets and forecasts so they can make informed decisions. All of the people that use accounting information rely heavily on accountants to make sure that all of the information is accurate, understandable, timely, fair, and relevant (Harrison, Horngren & Thomas, 2011) .
Financial Statements
Financial Statements include the Income Statement, Balance Sheet, and the Statement of Cash Flows. The income statement records all revenues and expenses of a f...

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