What is accounting? Accounting is the foundation of the business world, tracking money and providing information for every major decision a company takes. Accountants are the wizards who make all of this work; they are always in demand and the old phrase that someone with an accounting degree will “never be out of a job” holds true today.
One of the major jobs of accountants is to track money in a business and prepare financial statements. When you study a degree in accounting you learn to use a common language called generally accepted accounting principles or GAAP. Using those principles, accountants are in charge of preparing the three key financial statements: the profit and loss statement, the balance sheet, and the statement of cash flows. By all using the same GAAP rules, accountants make it so investors, regulators, and people at other companies can easily compare performance and the relative health of the financials.
Another main job for accountants is to analyze a business internally and present recommendations to decision makers. In this role, accounting helps management decide where to invest their extra money and what impact it will have on profitability. Individual accountants with specialized knowledge of the business become extremely important to each business as they are the only ones capable of providing the right advice!
Overall, there are three main types of information accountants provide:
Operational information is the key items needed on a day-to-day basis to make sure employees get paid, sales are tracked, and suppliers get paid. This is the sort of information that takes up the majority of an accountant’s time. It also provides the foundation for two other types of information an accountant prepares.
Financial information is used by managers, shareholders, and other people concerned with the health of the company to make decisions about the company and its operations. If you have invested in a company you want to make sure they are using your money for the right things, and if a company owes you money you want to make sure they can pay for the goods or services you provided. Financial information provides insight into how a company is doing and is presented in a standard format to guarantee clarity.
Managerial information is used by the leaders of the company to track, budget, and plan for the future. Using this sort of information, managers can determine the cost of programs, measure the relative return on investments, and analyze the impact of their decisions. By tracking the impact of their actions managers are then able to budget for future decisions and plan for expansion into new areas of investment.
With this framework accountants have a broad and important impact on almost every business. Because of that impact there is a lot of research in the industry. The accounting field is constantly evolving and as new areas develop, organizations like The American Accounting Association work to understand how it is developing and bring thought leadership to accounting professionals.