Unit 2 DB
Accounting data helps owners and managers make business decisions.
Cash bonuses depend on accounting numbers. Nearly all businesses use the amounts reported in their financial statements as a basis for rewarding management. Because managers act to achieve these accounting measures, selecting measures that are not easily manipulated is important. Equally important is maintain a balance of measures that reflect the goals of profitability and liquidity.
Profitability and liquidity are the two major goals of all businesses.
Profitability is the ability to earn enough income to attract and hold investment capital.
Liquidity is the ability to have enough cash ...view middle of the document...
Small business owners up often look for different ways to make the best and most informed business decisions. Accounting information is one tool owners can use for this purpose. Accounting is the process of recording, reporting and analyzing a company’s financial transactions. Business organizations use this information to measure their company’s performance and look for ways to improve current business operations.
Financial accounting usually represents the company’s aggregate financial transactions for a certain time period. Financial statements include information relating to the company’s sales, cost of goods sold, expenses, assets, liabilities and owner’s equity. Business owners often prepare this information to review how well their company generates profits from the amount of business expenditures. Business owners may make budget decisions based on the company’s income performance.
Business owners use financial accounting information to secure external financing for business operations. Many small business owners need external financing to pay for start-up costs or expanding operations. Preparing accurate financial statements that represent the company’s true financial position is an ethical use for the company’s information. Falsifying accounting information to secure bank loans or equity investments can create dangerous credit situations for a company and its business owner.
Ethical business decisions usually require accurate and valid financial...