|
|
Skip to a different definition: |
|
A
- B - C -
D - E
- F - G -
H - I
- J - K -
L - M
- N - O -
P - Q
- R - S -
T - U
- V - W -
X - Y
- Z |
|
| Accounting |
What It Is:
Accounting is the process of systematically recording, measuring, and
communicating information about financial transactions.
How It Works/Example:
At the heart of accounting is the double-entry bookkeeping method. This involves
making at least two recording entries for every transaction: a debit in one
account and a credit in another account. The method helps prevent errors because
the sum of the debits should equal the sum of the credits. The three major
financial statements produced by accounting are the income statement, the
balance sheet, and the cash flow statement.
Accounting can be done on a cash basis (cash accounting) or on an accrual basis
(accrual accounting). Cash accounting records cash inflows and outflows in the
period in which they occur. Accrual accounting records income and expenses in
the period to which they are attributable rather than when cash payments come
and go. For example, a check written in April for March’s utilities would
appear as a March expense under the accrual method and as an April expense under
the cash method.
There are two general kinds of accounting. 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.
There are two kinds of users of accounting information: internal users and
external users. Internal users are usually company managers who use accounting
information to decide how to plan and control operations on a daily and
long-term basis. External users are existing or potential investors, creditors,
analysts, financial advisers, regulatory authorities, unions, and the general
public. They use accounting information to make a myriad of decisions about
whether to buy, hold, sell, lend, continue a relationship, or make an agreement.
The Financial Accounting Standards Board, the Securities and Exchange
Commission, the IRS, and other regulatory bodies set accounting standards and
requirements for accounting frequency and presentation.
Why It Matters:
Accounting is tremendously 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.
It would not know 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.
|

|
Income Security
of the Month
If you're looking for
high yields, monthly payments and unprecedented safety from your
investments, then you need to learn more about our "Income
Security of the Month" for November 2008. This stable
preferred stock has a long
track record of paying some of the most solid dividends in Wall
Street history. In fact, the preferred issue pays a monthly dividend
totaling 10.3% annually
and has
outperformed the S&P 500 by more than +44 percentage points over the last
year!
|
Top
10 Stocks for 2008!
Since we began publishing this report back in 2003, the picks we've
featured have consistently beaten the broader market -- delivering average
gains of +21.3% per year and outperforming the S&P by a nearly
2-to-1 margin. Act now to reserve your copy of our newest report -- Top
Ten Stocks for 2008. |
|
|