The Importance of Accounting Decisions - Part II Word Count: 650 Articles | Accounting

Over the years the profile of people who use accounting information has changed. These days government users are its heavy user for tax calculation purposes. In fact, tax is the single most important source of income of the government. According to laws of the federal and state governments and even local laws, companies and individuals are required to pay a variety of taxes. Sales tax, excise tax, social security tax, federal, state, tax, payroll, and city income taxes are only a few of the taxes which companies and individuals pay.

Each of these taxes is governed by various complicated rules and regulation. It is your duty as a citizen of the country to pay taxes, though it is a tedious process. For instance, for providing accounting information on federal income tax, the Internal Revenue Code contains thousands of rules. It is also mandatory for all companies who operate in the US to report to one or more regulating agencies.

Public corporations are governed by Securities and Exchange Commission or SEC (To find out more information visit their website at  http://www.sec.gov/). This regulatory body is set up by the government to protect the interest of the public in matters of investing in stocks and shares. Companies who are listed in the Stock Exchange would have to comply with SEC’s rules and regulations. Groups like the labor union also study the financial statements to negotiate contracts with the management, where the income of a company plays a major role.

The people who have an indirect interest in the finances of the company are brokers and finance analysts who advise investors and creditors. These days, consumer groups and members of the public also take a keen interest in the financial health of a company.

They are keen to know how the financial health of a company is going to impact the environment as well as the people living in that area. To set economic policies and programs, President’s Council of Economic Advisors and the Federal Reserve Board may also use accounting information.

It is interesting to note however that nearly 30% of all business in the US are non-profit organizations like hospitals, universities, Red Cross, YMCA, Better Business Bureau, and WWF(World Wildlife fund, was formerly in a lawsuit and won against WWE World Wrestling Entertainment, which was originally known as World Wrestling Federation).

It is possible that you might be thinking that managers of such non-profit companies need not be familiar with accounting principles. Reality is that they are familiar. They have a budget to work on and need to supplement their income by raising money. The money is collected from investors, creditors or donors. They also follow taxation laws and pay the creditors on time. So the non-profit businesses also have to follow the same rules and have to comply with many similar business situations.

Accounting can measure processes and communicate vital information in an efficient way. To make a viable measurement, accounting has to take into consideration four simple questions: what is being measured, when should a measurement be made, how much money should be placed on what is being measured, and how the measurement should be categorized.

These questions related to the basic rules which govern accounting as an art and science.

Every day, accountants are challenging these questions which are resulting in the answers changing every day too. It is thus a good idea to keep your self updated on the current trends.

For example take the first question which asks what is measured. Imagine a machine which stitches clothes. How many different measurements can you possibly make of the machine? You can calculate its cost, how much its productivity is and how fast it can stitch the desired number of clothes. While some of the information is very important to accounting, some are irrelevant. Financial accounting also probes into find how money can impact other businesses and corporations.