Accounting is often called “the language of business.” Why? Because it communicates so much of the information that owners, managers, and investors need to evaluate a company’s financial performance. These people are all stakeholders in the business, which is to say they’re interested in its activities because they’re affected by them.
In fact, the purpose of accounting is to help stakeholders make better business decisions by providing them with financial information. Obviously, you wouldn’t try to run an organization or make investment decisions without accurate and timely financial information, and it’s the accountant who prepares this information.
More importantly, accountants make sure that stakeholders understand the meaning of financial information, and they work with both individuals and organizations to help them use financial information to deal with business problems.
Actually, collecting all the numbers is the easy part—today, all you have to do is start up your accounting software. The hard part is analyzing, interpreting, and communicating the information. Of course, you also have to present everything clearly while effectively interacting with people from every business discipline.
All this means that "accounting" can be defined as a system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.
Role of accounting
Accounting helps direct and control operating activities.
Fields of Accounting
Accountants typically work in one of two major fields. Management accountants provide information and analysis to decision makers inside the organization in order to help them run it. Financial accountants furnish information to individuals and groups both inside and outside the organization in order to help them assess its financial performance.
In other words, management accounting helps you keep your business running while financial accounting tells you how well you’re running it.
Management Accounting
Management accounting plays a key role in helping managers carry out their responsibilities. Reports are tailored to the needs of individual managers, and the purpose of such reports is to supply relevant, accurate, timely information in a format that will aid managers in making decisions. In preparing, analyzing, and communicating such information, accountants work with individuals from all the functional areas of the organization—human resources, operations, marketing, and finance.
Financial Accounting
Financial accounting furnishes information to individuals and groups both inside and outside the organization to help them assess the firm’s financial performance. These financial reports—including the income statement, the balance sheet, and the statement of cash flows—summarize a company’s past performance and evaluate its financial health.