Accounting is the practice of collecting, recording, classifying, analyzing, and summarizing financial information for the purpose of decision-making within the organization. It is vital for accountants to adhere to the recognized accounting standards to give information that is reliable and realistic for the growth and development of the organization.
This essay explicates the manner in which accounting information is used for making business decisions and significant accounting terms.
Use of Accounting Information in Decision-Making
Notably, accounting is used in making decisions as it entails effective recording of real events. Cunningham, Nikolai, Bazley, Kavanagh, Slaughter, & Simmons (2011) assert that accounting records the actual financial transactions of the company hence providing a vital basis for decision making as this information is compared over different periods. Past accounting information gives managers the opportunity to make decision in relation to the current happenings in the market.
Additionally, accounting is used in making decisions as it shows all aspects of the company’s expenditure and incomes. Accounting provides clear information relating to both expenses and the areas of income within the organization. In line with this, managers are able to make decisions that would maximize revenue and minimizing unnecessary expenses in the organization.
Three Accounting Terms
The going concern concept is one of the key terms used in accounting. According to Carey, Knowles, & Towers-Clark (2011), the going concern concept implies that business operations would continue with operations into the future as the business continues managing its accounting system. This means that the business has adequate resources and is viable to continue with its operations as long as possible into the future.
Another vital term is materiality. Materiality means that accounting would only depend on details that are relevant in the determination of business operations and the recording of financial information. In line with the term of materiality, accounting does not take into consideration items that are trivial in affecting business operations.
Conservatism is another important term in accounting. Kimmel, Weygandt, & Kieso (2010) reiterate that this term requires all businesses to account for liabilities even in cases where they are deemed not to occur. Again, businesses should also not anticipate revenues and should only account for them at the time of receipt of these revenues. This facilitates efficient operations in the business.
In conclusion, accounting is founded on principles and concepts that must be taken to consideration when dealing with accounting information. Overall, accounting information is a vital tool for decision-making within the organization as it records actual financial transactions.