Accounting as a Must for Capturing Operating, Financial, and Managerial Accounting Information - Essay Example

In the simplest sense, accounting can be defined as the system which provides information about the financial situation of an organization. Since accounting is all about recording financial transactions, it is then a necessity for any organization which deals with money (Atrill and McClaney 2001).

And looking at the global business situation right now, no business entity is ever-existent without financial resources. Accounting provides a systematic and comprehensive way of recording a company’s financial transactions. For one, the accounting equation serves as the basis of the company’s financial statements recognizing the principle of double-entry bookkeeping in accounting. The accounting equation is as follows: assets of fewer liabilities = shareholders’ equity. It can also be expanded as assets fewer liabilities = shareholders’ equity (revenue fewer expenses)(Keown et al 2005).

The balance sheet of a business organization becomes the clearest manifestation of how this accounting equation is applied as this financial statement shows how its resources are financed by its stakeholders. From the introduction of the accounting equation as the sole basis of accounting, it becomes clear that business organizations are all required to make use of this system. For one, companies always want to know the level of assets or resources that they have at hand. All companies are interested in knowing how much money is the bank, how much inventory is in the warehouse, how many accounts receivables are not yet collected, and how much they paid for prepaid expenses.

In addition, it is irrefutable that they will also be interested in how much they need to still pay their suppliers and creditors together with how much money is infused with their owners. Accounting aids a business organization to gather three types of information namely operating, financial, and managerial (Atrill and McClaney 2002). All companies are required to use accounting for operating purposes or for daily activities in order to record and determine the amount of salary owed to workers, track sales, and level of inventory.