Accounting is a tool for decision-making, particularly managers and owners use them the most. It provides very important financial information of the business as well as a rapprochement to the business financial position.
There´s a few types of accounting, basically are: financial accounting and managerial accounting. I´ll describe both of them but focusing on financial accounting.
- Managerial accounting is aimed at internal use; it helps directly to decision-making, for it is forward-looking. For that reason it has no statements to fill so double-entry (T-account) is not needed. Managers and employees use this accounting method to measure future decisions.
- Financial accounting has a wider objective. External use, backward-looking are features of this method which has three basic statements: income statement, retained earnings statement, balance sheet, statement of cash flow. The main users are state authorities, consumers and suppliers, lenders and shareholders.
Financial information is not absolutely objective. Financial information could be manipulated easily by managers, for instance, to show more profits and lower the costs, to make-up the business face so it looks better for investors, or even in order to have economic consequences. To avoid some of these issues, financial information is regulated by laws in each country (that could be different). Therefore, financial information should be relevant and reliable on content, comparable and understandable publically.
next topic==>the financial statements
source: my notes and “financial accounting by horgren and harrison 6th edition”.