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Accounting terms or theories

Explain to your staff at least 2 ways in which accounting data are used to make business decisions.
Explain at least 3 related accounting terms or theories.

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Solution Preview

As per Netmba.com "The accounting process is a series of activities that begins with a transaction and ends with the closing of the books."Financial Accounting is an art of recording, summarizing and interpreting the financial transactions of an organization. It provides us the financial statements such as balance sheet, income statement and cash flow statement.
Help provided by accounting data:
Financial Statements is designed primarily to assist stakeholders in deciding where to place their scarce investment resources. It is also used to help management to know the performance of organization. It is used by the external parties to take decisions, for example investor decides about the investment in the organization. Similarly lender, supplier etc. also assess the credibility of the company. On the other hand, management accounting gives the internal reports relating to the product/process/activity.
Use of accounting

Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information.

(1) How good or bad is the financial condition of the business?

(2) Has the business activity resulted in a profit or loss?

(3) How well the different departments of the business have performed in the past?

(4) Which activities or products have ...

Solution Summary

An explanation to staff why accounting data is used to make business decisions. Related accounting terms and theories are discussed.