Accounting

Making good decisions is critical for success in any business enterprise. Accounting plays a vital role in providing information needed to make knowledgeable financial decisions. The information supplied by accounting is in the form of quantitative data, primarily financial in nature, and relates to specific economic entities. An economic entity may be an individual, a business enterprise, or a nonprofit organization. Every entity, regardless of its size or purpose, must have a way to keep track of its economic activities and to measure how well it is accomplishing its goals. Accounting provides the means for tracking activities and measuring results.

Without accounting information, many important financial decisions would be made blindly. Investors, for example, would have no way to distinguish between a profitable company and one that is on the verge of failure; bankers could not evaluate the riskiness of potential loans; managers would have no basis for controlling costs, setting prices, or controlling the company’s resources; and government would have no basis for taxing income.

Thus, accounting is a service activity designed to accumulate, measure, and communicate financial information to various decision makers, such as investors, creditors, and managers.