Theories Of Accounting

Accounting is the documentation of financial data in a way that is useful. It consists of two things; financial accounting and management accounting. Financial accounting is where financial data is summarized and recorded. It is also known as bookkeeping,when financial activities are summarized in the form of statements which are then used to judge how well the business is running. These statements provide important information such as how much profit is the business making,how much investment and return is made in the business and how much money does the business owe. Management accounting provides data to those in management positions for analysis and business decisions.

 A good book which gives a lot of excellent information about financial accounting and is also used by many students in australia is Australian Financial accounting 7th edition. One of the topics covered are the theories of accounting. These are important for all parties involved in na business to understand. They include cost principle, materiality,matching principle etc.Cost principle is the record of assets acquired immediately after they are acquired. They can vary from simple things such as office things to factory appliances to new buildings. Matching principle is where all the transactions that are aligned with a certain stream of revenue are put together and reported as one. For examples certain expenditures are reported every month or every three months. The accountants have to be very alert and accurate when it comes to this .

Accounting is very crucial to any business as it deals with the monetary aspect which determines the success of that business. This is better explained is Australian financial accounting 7th edition. Accounting ensures that there  are proper records available for all transactions that have taken place. When done systematically,it provides a great base for further decisions. It also helps firms deal with the legal aspects of things such as their financial rights. If not for accounting,people would find it strenuous to calculate any financial matters such as different types of taxes. Thus is it crucial so that businesses know their legal agreements. Providing financial statements help them make decisions on investments and judge how well they have performed over a certain period of time. Decisions regarding where to invest next and what to invest in as well as which investments are more profitable are also made.

Accounting helps in processing budgets as well as predicting certain outcomes. These help in investing in certain things and not others according to the budget and forecast. Managerial decisions are also made with help from accounting. For example decisions regarding buying and selling,pricing and analysis.