Why Do We Need Accounting? Companies of all sizes need to implement a streamlined accounting system in order to accurately record and report business transactions, keep track of invoices and reduce problems with tax authorities and the IRS. The financial manager responsible for recording all incoming and outgoing transactions, maintains consistent records and creates financial statements at the end of each financial period. Significance Accounting, is the measurement of financial resources and account information in order to report financial statements in a consistent manner and maintain clear and objective reporting practices throughout the organization. Function Accounting helps companies organize their most important business transactions and obtain reports about their cash flow, balances on key accounts, and their overall financial position at any given time. These are important elements of business regardless of a company's size, and can help resolve or reduce the risk of reporting inconsistencies to financial managers, investors and tax authorities.

Types Financial accounting is the process of collecting financial information about a company and interpreting it for both private and public use. Management accounting is the process of collecting financial information to be used within an organization; and the reports and account information are shared with senior management, stakeholders and other parties who have a vested interest in the company's operations. Tax accounting is a type of accounting designed around tax rules and regulations. Benefits In addition to keeping track of transactions, a well- implemented accounting systems may also be used to predict cash flow, maintain a budget forecast revenue as part of a financial projection or analysis.

The Need for Financial Information in Accounting Without financial information, accounting cannot help companies monitor operating activities or prepare performance data., financial information is the fuel that allows corporate accounting mechanisms to function and meet their operating goals. Various work streams, including manufacturing and sales activities, feed economic data into accounting processes. Production Processes keeping manufacturing records accurate in line with regulatory guidelines enables a company to get valuable data such as manufacturing costs, direct labor and factory overhead -- which includes fixed costs, such as rent and industrial insurance. Human Resources Management Payroll and health benefits Sales and Marketing Sales revenues, advertising budgets, commissions

What Types of Decisions May Be Made Using Financial Accounting Information? Basic financial accounting information for a business comes from the preparation of an income statement and a balance sheet. These financial statements provide a record of the profit performance of a company and its financial condition at a point in time. Managers use this data to create certain ratios that analyze various aspects of a company's performance, determine strengths and weaknesses and develop strategies for improvement. Financial Ratios The financial accounting information from a company's financial statements does not mean much by itself. However, when this information is used to prepare ratios, it can measure current levels of performance, reveal trends and be used as goals for planning. The primary financial ratios measure profitability, liquidity and debt leverage. Liquidity Businesses need to maintain adequate liquidity to pay their bills on time. The current ratio measures the level of liquidity; it is calculated by dividing current assets by current liabilities. Most businesses need a minimum current ratio of 2:1 to have sufficient liquidity.

Debt Leverage A business must maintain a reasonable balance between the amount of debt outstanding as compared to the amount of shareholders' equity. Most bankers do not like to see more than $2 in debt for each $1 in equity. If a business is looking to expand and purchase more fixed assets, the debt-to-equity ratio will dictate whether the company is able to borrow the funds for expansion or will need to seek additional outside capital.. Planning Based on the analysis of the financial accounting information and calculation of the ratios, managers can identify weak areas that need improvement and develop strategies to strengthen the business. Managers can decide which employees will be responsible to implement the strategies and establish goals to measure their success in achieving the objectives.