Who Uses Accounting Information?

Anyone who makes business decisions uses accounting information to guide

them. Accounting is significantly important because it is the language of
business, and it is at the root of making informed business decisions. Without
accounting, managers would not know which products were successful, which
business decisions were the right ones, and whether the company was
earning money.

Accounting shows how much to pay in taxes, whether to lease or buy an

asset, or whether to merge with another company. In short, accounting
doesn't just count the beans, it measures a company's success at meeting its
goals and it helps investors understand how efficiently their economic
resources are being used. This is why companies must be proficient in
accounting in order to make good decisions.

Accounting can be controversial, in that accounting rules and methods are

sometimes subject to interpretation or can appear to distort a company's true
performance. This is another important reason that effective leaders and
managers must thoroughly understand the accounting impact of their
decisions.

Financial vs. Managerial Accounting

There are two general kinds of accounting: financial and managerial.

 Financial accounting is the recording and communication of economic

information in accordance with Generally Accepted Accounting
Principles (GAAP) and is primarily for external users. 

 Managerial accounting is the recording and communication of economic

information that may or may not be in accordance with GAAP and is for
 internal users. Other accounting specialty areas exist, such as tax
accounting, oil and gas accounting, or forensic accounting.

How the Accounting Cycle Works

The summation of these accounting basics is the accounting cycle. The
sequence of steps starts when a transaction occurs and ends with its entry in
financial reporting. 

The Financial Accounting Standards Board (FASB), the Securities and

Exchange Commission (SEC), the IRS, and other regulatory bodies all set
accounting standards and requirements for accounting frequency and
presentation.

Difference Between Bookkeepers and CPAs

Certified Public Accountants, or CPAs, are in the business of financial
accounting. Bookkeepers are in a different discipline of the same financial
sector and are responsible for recording transactions.

Accounting is important in compiling, classifying, measuring, recording, and

outlining financial data. Bookkeeping, handling a smaller scope of tasks, is
primarily responsible for the recording of financial transactions.