Why Do We Need Accounting?

Introduction Summon up a mental image: that of a human being with no nervous system. We are probably envisaging an inert blob of protoplasm, entirely powerless to perceive its environment or to act with purpose. The nervous system is what converts that protoplasm to an effective human being. An accounting system is the nervous system of the enterprise that permits it to perceive and act. It converts an inert bundle of assets to a working enterprise. Accountants have been the people who designed and operated these enterprise nervous systems--systems that at the micro level permitted the achievement of enterprise objectives and at the macro level permitted the mercantile, industrial and post-industrial revolutions. (Elliott 2000). The system involved a double entry for each exchange with the outside world, representing the benefit and the sacrifice to the enterprise. That information was laboriously and expensively captured, and once it was obtained, no further information was required--only analyzed and reanalyzed that information into balance sheets, income statements and other reports. A definition of accounting that captures more of what accountants actually do, and can do, goes like this: Accounting is the information infrastructure necessary for an organization to achieve its objectives. (Elliott 2000). Accounting Classified & their Importance The essence of accounting is its use as the language of business (Woelfel, 1995a, p. 2). Accounting is a basic tool for recording and reporting the economic events of an enterprise. In 1970, the AICPA defined accounting as a service and communication tool that would provide quantitative information to aid in decision making. Financial accounting is primarily concerned with the recordin...

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