Accounting is the system that measures business activities process information into reports, and communicates these findings to decision makers. Decision makers normally base their decision on accounting reports. The documents that report on an individual’s or organization’s business in monetary amounts are known as financial statements. Because of this, accounting is often called the language of business or better still the language of financial decisions. The better we understand the language, the better we can manage the financial aspects of living.Is our business making profit? Are sales strong enough to expand our production capacity? Can we allocate some of the profit to a new instrument project? The most intelligent answers to business questions like these are based on accounting information. Decision makers use the accounting information to develop sound business plans.
The user and uses of accounting information vary. The users include individuals, business, investors and creditors, financial analysts, employees and labour union, taxing authorities and other users. Business managers use the accounting information to set goals for their organizations, to evaluate their progress towards these goals and take corrective action if necessary. Potential investors use the financial statement to evaluate what return they can reasonably expect on their investment. Potential lenders use the accounting information to determine the borrower’s ability to meet the scheduled payments. Financial analysts use the accounting information to advise their clients, or employers about various instrument alternatives. Employees and labour unions use the accounting information to evaluate salary and fringe benefit packages.
Answer the following questions!
1. What is the topic of the passage?
2. Why is accounting called the language of financial decisions?
3. What is the end product of the accounting work?
4. What does accounting mean to potential investor?
5. List the things accounting does!