What is the Purpose of Accounting?

The Function of Accounting

The purpose of accounting is to provide the information needed to make economic decisions. Accounting provides economic information such as profit and loss for both internal and external users such as managers and investors (Weygandt, Kimmel, & Kieso, 2008). Internally, accounting departments provide financial accounting information in order to support supervisors and provide performance data such as an annual report. For instance, a company might decide to use a loan when making a capital purchase depending upon the liquidity of the company. Externally, the financial accounting information provides financial information to investors, auditors, banks and other individuals and institutions that may have an interest in the company. The external users benefit the most from financial accounting information because they can make quality judgments and decisions concerning the company.

Accounting also serves the purpose of allowing firms to operate in both an economically sound and ethical manner. By using accounting information, firms understand if they are making decisions that are rational and beneficial to the company. Because financial accounting is based on accepted principles controlled by Generally Accepted Accounting Principles (GAAP), the accounting processes help to maintain ethical operations.

References

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley.

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