purpose of accounting and its financials

Essay by fairchildUniversity, Bachelor'sA-, December 2010

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The importance of basic Accounting

ACC 280

September 06, 2010

One of the keys to a successful business is being able to measure good financial information of an organization to make effective business decisions. Accounting helps layout the means to measure and factor out these finances by providing financial information, "to understand your organization, you have to know the numbers" (Weygandt, 2008). This paper will discuss the idea of accounting and identify the four basic financial statements. Financial statements will then be interrelated with each other, and how they are useful for users both internal and external.

Accounting was developed back in 1491 by a famous Italian mathematician named Luca Pacioli. Luca Pacioli was known for publishing his famous book called, Summa de Arithmetica, geometria, proportioni, et proportionalita. Pacioli was the first to announce what is described as the double-entry accounting, "also known as the Venetian method" (Tripod, n.d.)

and the use of journals and ledgers in his published book.

Keeping track of business transactions and being able to provide history of financial activities is a vital element for a company's financial status. Accounting has been known as, "an information system that identifies, records, and communicates the economic events of an organization to interested users" (Weygandt, 2008). Understanding the importance can help impact an organization financially by making sound financial decisions. Even more with the struggling economy and job market, accounting using the information can determine the present and future stability of an organization. Not only is accounting important for businesses but also for individuals who make financial decisions for others or themselves.

The four most common financial statements used in accounting are income, retained earnings, balance sheet, and statement of cash flows. Each of these statements is very important in understanding were the business stands in a market.