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Purpose of Accounting

In: Business and Management

Submitted By NINI24
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Purpose of Accounting
Accounting serves as one of the most important functions of a company. Without proper accounting many businesses like Microsoft, Pepsi, or Home Depot would not be as successful as they are today. Accounting focuses on the economic events of a company and informs internal and external users. The focus of this paper is to define the purpose of accounting; identify the four basic financial statements; and explain how they are interrelated with each other and useful to managers, creditors, investors, and employees.
The purpose of accounting is to identify, record, and communicate economic events of an organization to interested users (Weygandt, 2008) which then helps such users to understand the financial direction of a company. The first step in accounting is to identify economic events which may include payment of wages or the sale of a computer. Once specific economic events are identified relevant to a specific business the company accountant or bookkeeper then record the events to have a history of financial activities (Weygandt, 2008). After recording economic events of a company the accounting department will communicate the information to interested users consisting of CEO’s, CFO’s, investors, management, and officers. The accounting information provided by a company is helpful to both internal and external users. Internal users consisting of managers, officers, and directors use the information to make decisions to buy or sell stock, increase or decrease production, or increase or decrease the amount of employees within a company. External users consisting of creditors and investors use the information provided to determine whether they (the investors) should buy or sell stock and the creditors use the information to determine the risks of lending money or approving credit to a company.
When internal and external users review financial

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