In preparing, analyzing, and communicating such information, accountants work with individuals from all the functional areas of the organization-human resources, operations, marketing, etc. Reports are tailored to the needs of individual managers, and the purpose of such reports is to supply relevant, accurate, timely information that will aid managers in making decisions. Because the information that it provides is intended for use by people who perform a wide variety of jobs, the format for reporting information is flexible. Management accounting, also known as managerial accounting, plays a key role in helping managers carry out their responsibilities. In other words, management accounting helps you keep your business running while financial accounting tells the outside world how well you’re running it. Their primary focus, however, is on external parties. Financial accountants furnish information to individuals and groups both inside and outside the organization in order to help them assess its financial performance. Management accountants provide information and analysis to decision makers inside the organization in order to help them run it. Fields of AccountingĪccountants typically work in one of two major fields. In any case, we’re now ready to define accounting as the process of measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers. Of course, you also have to present everything clearly while effectively interacting with people from every business discipline. The hard part is analyzing, interpreting, and communicating the information. Actually, collecting all the numbers is the easy part.
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. You shouldn’t try to run an organization or make investment decisions without accurate and timely financial information, and it is the accountant who prepares this information. In fact, a key purpose of accounting is to help stakeholders make better business decisions by providing them with financial information. The financial futures of owners and other investors may depend heavily on strong financial performance from the business, and when performance is poor, managers may be replaced or laid off in a downsizing. These people are stakeholders in the business-they’re interested in its activities because they’re affected by them. The Role of AccountingĪccounting is often called “the language of business” because it communicates so much of the information that owners, managers, and investors need to evaluate a company’s financial performance. This chapter will introduce you to the subject of accounting and financial information so you can begin to get an understanding for how the valuation process works. In most cases, in deciding how much to pay for a company, investors rely on published accounting and financial information released by publicly-traded companies. How does the market know that Apple should be valued more than $120 billion higher than Alphabet? Do investors just make their decisions on instinct? Well, some do, but it’s not a formula for sustained success. You may wonder what kind of information is used to make these determinations. Apple has briefly ceded the leadership position to Alphabet, the parent company of Google, on a couple of occasions, but for the most part, it has been the leader for quite some time. Its value as of April 2018 was more than $80 billion greater than that of the next largest company, Amazon. Although markets can fluctuate, sometimes wildly, if you are reading this chapter for a course later in 2018 or in 2019, it is not unlikely that Apple will have retained its leadership position. This statement is based on market value, which in April 2018 was roughly $841 billion. is the most valuable company in the world. Most Valuable Player Apple Headquarters in Cupertino, CaliforniaĪpple Inc.
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