The Overview of Accounting

Essay by tallgirl43University, Master'sA, February 2010

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IntroductionAccounting provides information that is useful and relevant for interested parities when making decisions regarding the company and its operations. In order to do that effectively, a specific language and subsequent rules have been developed for users of the information. Accounting is a specialized language that describes the financial position of a company. Accounting, a required component of most companies is composed of three main categories; Operating information, financial accounting information, and managerial accounting information.

Operating information describes what is needed on a daily basis to conduct business in an organization. It encompasses employee payroll, sales, debts, credits, and inventory to name a few functions. Collectively these functions can be identified as financial statements. Operating information is what comprises the maximum amount of accounting information and is the basis for financial accounting information and managerial accounting operating information, also called financial statements, addresses specific audiences and has a purpose and a nature.

PurposeFinancial statements provide information about a company's financial status. It examines where the money originated from, where it is being spent and the current status and balance. A financial statement has four components; balance sheets, income statements cash flow statements and statements of shareholders' equity. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and counterparts over a period of time. The fourth financial statement, called a "statement of shareholders' equity," shows changes in the interests of the company's shareholders over time. Accounting has been defined as "the process of identifying, measuring, recording and communicating economic information to permit informed judgments and economic decisions ( Accounting, 1) ". The primary purpose of accounting...