Accounting as a Language of Business

Accounting as a Language of Business

The language of accounting involves both vocabulary and grammar learning.  the vocabulary involves becoming familiar with both the exact definition of accounting words and how they are used.  Owners of business employs accountant as the ‘interpreter’ of accounting language, this is often so when management is separated from ownership.  The grammatical part of accounting as a language of business involves a generally acceptable ordering of information in connection with a particular business organization.  The ordering of this information aids the use of such information in its location.

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Accounting as a language of business uses mainly figures and it is always in concise report form.  It is used especially in expressing.  Opinion decision making giving orders and posing judgement on the affairs of a particular business for a specific period.

USERS OF ACCOUNTING INFORMATION:

Financial Accounting Information is directed towards the common needs of wide variety of users.  There are two broad categoeis as users of financial information.  Internal and external users.  These include management owners/share-holders, employes and unions, potential owners existing and potential creditors and other which will be treated.

A)      MANAGEMENT:         Management is one of the major users of accounting information.  According to RONALD TACKER, management uses this information to formulate broad policies for the firms and to make special decision having a lasting impact on the firm.

The decision taken by management are to enhance profitability of the business and these decisions affect the business more than any other users decision.

Accounting provides a means of evaluating management’s performance in carrying our individual activities as in operating the business a whole.  Establishment of standards and guide post are done by the accountant who also must be relied on by the management to provide them with alternatives.

B)      OWNERSHIP/SHAREHOLDER:     Owners interest cannot be over emphasized according to REYNOLD, SLAVIN AND SANDERS, all investors depends upon accounting information include in the accounting report.  This helps them in making their decision whether to invest or not in a particular business.  Comparison are often made between the organization.

C)      EMPLOYEES AND UNIONS:         Employee need job security, they are interested in things like bonus, pension and profit out of which those are gain.  They use financial accounting information to back their argument when negotiating for increcised commendation.

D)      PENTIAL INVESTOR: This group of people rely mostly on the financial report to determine the future profit making trend as well as the possibility of the business continuity.  According to A.T. MONTGOIERY potential new owners of the firm need information to evaluate the desirability of making an ownership investment in becoming owners of the firm.

E)      EXISTING AND POTENTIAL CREDITORS AND CUSTOMERS:        About this group of users black said they investigate its financial standing before deciding whether to extend credit at it all what amount to extend and under what terms.

Most creditors use the financial accounting information to access the business ability to pay for goods bought on account and whether the business is in the position to supply its customers the needed goods regularly when the above are lacking the potential and existing customers and creditors will be interested in the business.

F)      GOVERNMENT AGENCIES:         Both state and federal government are interested in financial accounting reports for tax assessment purposes.  They may also need their reports for publishing and ranking of firms.

CHARACTERISTICS OF GOOD INFORMATION:

For information to be good and adequate, it must inhibit certain characteristics such characteristics as follows:-

i)       ACCURACY:    This accuracy helps the management in decision making, for any decision based on false or inaccurate information will not be positively effective.  Some critics regard financial accounting as inaccurate because there are some transaction, they feel should be included but are excluded because they cannot be measured in monetary terms and also because of the going concern of nature of business.

ii)      UNDERSTANDABILITY:  Information should be presented in a form and content understandable to the users.  Presentation can either be textual, tabular, reportorial or diagrammatic.

iii)     CONCISENESS AND PRECISENESS:       Conciseness is a reality admired information system, concise information means that it goes straight to the point, as to preciseness, L HALL says it must be given in an easily assimilated form and on a manner appropriate to the occasion or purpose.

iv)     SPEED:      Information are gathered analyzed and presented quietly.  These days, the situation is so dynamic that the information is not speedy presented, it quickly becomes outdated.

2.4     MANAGEMENT OF INFORMATION:

This refers to the effective use of information out in the words of ROBERT MURDICK, the effective use of information has become as important as the effective use of any resource in the company.  The extent to which other resource are well managed, is the function of how well an information is managed, the information must be accurate possible way.

According to HARRISON, HORROCKS AND NEMAN, “If the accounting system is to fulfill its function of supplying information supplies must be accurate and reliable.  The management of financial accounting employs internal control system for the purpose of controlling and safeguarding the resource of the organization against waste, fraud, inefficiency and promoting accuracy and reliability of accounting information.   So, information management involves effective gathering recording, analyzing, reporting and controlling of accounting data.

BASIC ACCOUNTING CONCEPTS:

1.       Accounting Entity Concept:    According to MEKS Accounting information is complied for a clearly defined accounting entity so is a business enterprise whether conducted as a single proprietorship partnership or co-operation.  Accounting entity is differed from legal entity though some accounting entities are also legal entities for example a corporation estate, trusts government agencies etc. are both accounting and legal entity.  But a sole proprietor is an accounting entity and not legal entity since his liability is unlimited.

The choice of accounting entity is liberal and flexible.  For example, where several businesses are owned by one man.  Therefore as a general rule we can say that any legal or economic unit, which contracts.  Economic resources and accountable for them is an accounting.

B)      THE GOING CONCERN CONCEPT:       This has as underlying assumption that an accounting entity can be continuous in its operation.  It ignores immediate liquidation values in assets and liabilities in presenting the balance sheet.

It is assumed that the business will continue for indefinite number of years.  As such, any amount said in advance e.g. Rent, will be spread through the number of years covered by the rent.

The going concern assumption is adopted by every accountant until it becomes unrealistic.  It is often dropped when the business is about to be liquidated and the statement are prepared for liquidation purpose.

C)      PERIODICITY:    The most appropriate and accurate time to measure the result of business activities is at liquidation.  But the management owners, government agencies and other users of accounting information on a more timely basis and their interest in the business activities cannot want indefinitely for such information.  So, the periodicity or time concept stated that the business into arbitary time periods.  Some people in the accounting profession believes that the shorter the period, the more difficult it is to determine the ne income of the business.  The net income provided by monthly reports in less reliable than that of quarterly period.

Subsequently, three year report are more reliable than quarterly reports.  “This phenomenon provided an interesting examples of a trade off between reliability and lineliness in preparing financial data.

D)      THE MONETARY UNIT CONCEPT:       This monetary unit concept indicated denomination used in measuring economic activity and that money also provides the basis for measuring and analyzing accounting information, “support for the assumption lies in the fact that the monetary unit is relevant, simple universally available, understandable and usefully, quantitative data are more useful in measuring economic activity and as such the concept of monetary unit is applicable to accounting activity in monetary units.

Accountant assume money to be a stable commodity, they ignore the changing value of money and inflation and lead themselves to critics who criticize and question the suitability of such concept for easy addition and calculation for example an accountant can add the cost of fixed assets bought in 1993 to the value of asset bought 1994 and if the asset cost N40,000 and N60,000 respectively, a total of N100,000 will be arrived at without any difficulty.  For this reason, may critics postulate that financial accounting information is an unreliable source of decision making aid.

E)      THE CONSISTENCY CONCEPT:  This concept stated that a particular accounting method once adopted, should continue to be in use in the business from one time period to another without any unnecessary changes, this enable the user of financial accounting information to be able to interpret intelligently the changes in the financial position and the amount of net income.  Not withstanding this, management (with the assistance of accountant) can change the method of accounting when there is need to do.  When there is important change in the method, the auditor must report on certification of the accounts that a change has occurred.

Finally, consistency applies to a single accounting entity and increase the comparability of financial statement from period to period.

METHODOLOGY:

No research work is wholly original, something have to be done from the work of others.  With knowledge and appreciation, the researcher will include textbooks in all type or branches of accounting, textbooks in management, banking, finance and accounting.

Magazines, Newspapers, Almances and Encylopedia will be extensively be used.  Apart from adequate use of literature other methods of research will includes:-

a)       Interview with businessmen.

b)      Questionnaires will be designed and distributed to some businessmen.  The questionnaires will be designed for officers in management, cadre in public and private companies, owners in sole proprietorship and shareholder partners.

c)       A look into the document of some business organization and drawing heavily from there is intended.  Financing  accounting information is often regarded as “figures” information and the method used in this research is the transformation of the data into information in such a way that it should be useful to both he knowledgeable accounting and those who do not.

—This article is not complete———–This article is not complete————
This article was extracted from a Project Research Work/Material Topic

“THE EFFECT OF FINANCIAL ACCOUNTING REPORTING ON THE MANAGEMENT OF A BUSINESS.  A CASE STUDY OF AGU BROS TRADING COMPANY LIMITED 1987.”

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