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Home » Business And Finance Articles » Accountings Role In Business Decisions

Accounting's Role In Business Decisions

The people, who make decisions in accounting, make it based on three categories. First, people who manage a business, second, the external people of a business who have a direct financial interest to a business, and third the people and organizations that have an indirect effect on a business. This applies to non profit organizations as well. Management refers to the group of people who are in charge for operating a business and for measuring up to the profitability and liquidity goals. If a business is extremely large, then the management will most often require more than one person, and the people are hired to perform their job. Managers need to answer important questions such as what was the company's net income, and if they have a substantial rate of return. Does the company have enough assets, and which products bring in the most money? When making a decision, managers usually follow a systematic approach. Even though larger businesses require a more concrete analysis, they follow a similar pattern to small businesses.

Financing a business: Financing for a company is critical, because they need that money to continue their operations. Here is a nice website to find out more information about financing a business. http://www.sba.gov/financing/

Investing in a business: Companies invest in their current assets so that it will make money for them in the future.

Producing goods or services: Operations and production management is responsible for developing and producing goods and services that the company can sell.

Marketing: Learning marketing and advertising skills so that they can distribute goods and services more efficiently.

Managing workers: Human resource management requires the hiring of qualified employees, and also paying them.

Providing information: The information management retrieves data about the company such as how much they made in the last month, and organize the information in a way so that it can be used. It also releases information to managers, and to important people outside the business.

Another group of individuals that needs knowledge in accounting is those you have a direct interest in the business, go figures. They use the information to analyze how a business is performing. Most businesses generally publish their financial report which shows how well they meet their profitability and liquidity goals. These statements display how well a company did in the past and probably most important, how well they will do in the future. However, many people outside the business also study the financial reports. They are the investors and the creditors.

The investors are the individuals that invest in a business and will keep a part of the ownership. They are concerned with their past success and failures, and also will like to know the potential earnings. A concrete analysis of the financial statement will help prospective investors base their decisions. Once they finish investing they must continue to study a business financial statement. Next, the creditors are the companies that lease money to businesses for short or long term needs. Creditors are the people that deliver money or provide services for companies in advanced before getting paid. Their main concern is whether a business will have the money to repay the money with interest in an approximate time. Some of the things they study before they make their decisions are a company's liquidity, cash flow, and profitability. Some examples of creditors are banks, mortgage companies, and insurance companies.

Over the years the shift of people who used accounting information has varied drastically. Now, it is heavily used by governmental agencies, and in matter of fact taxes is the main source of income for government. According to the rules and regulations of federal, state, or even local laws, individuals and companies are required to pay a variety of taxes. These include but are not limited to, sales tax, excise tax, social security tax, federal, state, payroll, and city income taxes. Each tax requires there own rules and regulations which can be very confusing at times. Reporting your taxes is a law and a very meticulous and tedious process. For example, The Internal Revenue Code contains over a thousand rules for delivering accounting information in federal income taxes. Also, most companies generally have to report to one or more regulating agencies in the United States. All corporations must answer to the Securities and Exchange Commission or SEC (To find out more information visit there website at http://www.sec.gov/). This is set up by the government to insure and protect the public by regulating the buying and selling of stocks. Companies that are listed on the Stock exchange must adhere to the rules and regulations.

Some other groups such as labor unions analyze the financial statements of corporations to help negotiate a contract. The income of a company plays a major role in forming these contracts. The individuals who give advice to investors and creditors such as brokers and financial analysts have an indirect financial interest in a business. The amount of inertest in the financial health of corporations has been growing by consumer groups such as customers and the public. They are also concerned about how the corporation will affect the social patterns of the environment and of the people that reside in that area. The President's Council of Economic Advisers and the Federal Reserve Board use accounting information to set economic policies and programs.

It's interesting to note that about thirty percent of the businesses in the United States consist of non profit organizations. Some examples of non profit organizations (NPO) include hospitals, and universities. Some well known non profit organizations include Red Cross, YMCA, Better Business Bureau, and WWF(World Wildlife Fund, was formerly in a lawsuit and won against WWE World Wrestling Entertainment, which was originally known as World Wrestling Federation). You may think that the managers of these organizations don't need to know their accounting skills but they do. They still have a budget and needs to raise money just like any other business. They raise money by collecting it from creditors, donors, and even investors. They also need to have a nice plan and to pay creditors back in an efficient manner, and they also have to follow the tax rules. So even though businesses and non profit organizations have different agendas they both generally follow the same basic rules.

Accounting is a systematic information system that measures, process, and communicate information, particularly financial. When an accountant is making a measurement they must answer four simple questions. First, what is being measured, second when should a measurement be made, third how much money should be placed on what is being measured, and last how the measurement should be classified. These four questions deal with the basic rules of accounting, and the answers help establish what accounting is and what it is not. Accountants in different fields challenge these questions every day, and therefore the answers are changing often so that's why it's a good idea to keep to date with some of the trends.

And here is another random article you might be interested in...

Dialogue: The Four Dialogic Principles For Successful Communication

"But you don't understand!" exclaimed the manager, "this new initiative is vital for our team. If it doesn't work we could all be out of a job!"

"Uh-huh... Really... Explain to me again how this new initiative is so different from previous initiatives that were also going to cost me my job if they didn't work" asked the long-term employee.

"Look; we have to do this. Can't you see?"

"Why do we have to do this? No-one has explained to me yet 'why'."

And therein lies the fundamental problem of most management initiatives. They leave one small, seemingly insignificant cog unattendedâ€"letting the person at the 'sharp end' know why a new initiative has been launched and what their own personal role is expected to be.

Even those companies who do let the employees know the what and why very often fail to elicit anything other than tacit compliance and eventual failure of the initiative.

The reason is simpleâ€"the employees are given no part in the discussion about why a new initiative is needed, the business case for it, what shape the initiative should take to meet the business need, and what their individual role and responsibility is in order to bring the initiative to a successful conclusion.

At the heart of the issue lies communication:

Successful communication is not a one-to-one or one-to-many transaction, but a dialogue between interested parties

...and successful dialogues rely on four principles: Reality, Reaction, Co-ordination and Purposefulness.

1. Being real

"Do not say things. What you are stands over you the while, and thunders so that I cannot hear what you say to the contrary" Charles Darwin, 1859.

For employees (and customers, too!) 'reality' will be those things that most directly affect them. Yes, 'reality' is a perceptive subjectivity, but don't expect someone to change their perception of 'reality' just because you have a different viewpoint.

Internal and external customers of your communication are extremely adapt at seeing 'beyond the rhetoric', at exploiting any gap between rhetoric and their 'reality'.

If you are going to promise something, even just manage an expectation, ensure that what you are promising or managing is actually deliverable in the vast majority of instances.

2. React to what is said

How many managers or salespeople have we ourselves had to endure who listened politely to what you say, nodded their head and gave assuring "ah ha's" even, yet completely and utterly fail to act on what you have said? How many times have such interactions left you feeling like you had just spoken to a smiling and amiable wall?

Dialogue is not dialogue if the other person or persons don't react or show they actually understood what you said.

3. Co-ordinate your communication

Too often the communication is 'lost' on the recipients because the language used is jargon, or their are just too many implicit and explicit messages. Given a hundred different messages, which one should the recipient attend to first? Second? Last?

All communication should be in harmony to the strategic frameworkâ€"that is, the vision and the support documentationâ€"so that it responds to the vision, objectives and values; so that the links between the vision and the messages are clear; and so that the language used is common to all stakeholders.

4. Understanding the purpose of the message

Before even beginning a communication process, it is vital to understand what the customer or employee knows and feels about you and the ideas you represent. Knowing this helps you decide the purpose of the message.

Akin to Maslow's psychological heirarchy, there are four levels of purpose, each of which pre-supposes and relies on the existence of the previous level. They are sequential and it is not possible to achieve an objective until all levels are completed, in order and fully.

The levels, in ascending order are:

Awareness > Understanding > Conviction > Action

4.1: Awareness

Let's take as an example a company attempting to differentiate itself in the marketplace, with the end goal of bringing someone to make a purchase of their service.

Without bringing your existence to the attention of the prospective customer you cannot move on to the higher levels. Indeed, even internal communications often fall short on this point: they fail to restate the context of the communication, which is in effect 'awareness'.

4.2: Understanding

Once a prospect has gained awareness, they are then ready to move on to understanding what it is that differentiates you from the 'noise' of your competitors. They will need to understand what specific qualities YOU bring to the marketplace.

This level is vital to internal communication: the biggest block I come across in assessing why an internal communication has failed is not that the staff don't know 'what' is going on, but that they don't understand 'why' it is going on.

4.3: Conviction

Customers now have awareness and understanding; they now need convincing that your service is right for them.

Even more importantly, they must be convinced that YOU must be their supplier, because YOU have a distinctive competence that meets THEIR specific needs.

4.4: Action

Finally, this conviction in you must be turned into action. It is up to you to decide what action they should ideally take -â€" a phone call into a sales office, perhaps, or a request for a consultant to visit; even a request for further supporting literature.

In internal communication the primary level is all to obvious â€"- action. Yet unless those who are to deliver the service are made aware, helped to understand and are convinced they will not deliver effectively or efficiently.

Conclusion

At the heart of all management lies communication, and successful communication is not a one-to-many transaction, but a dialogue between interested parties. Successful dialogues rely on four principles: Reality, Reaction, Co-ordination and Purposefulness.

Understanding what the other's 'reality' is, giving and receiving appropriate reactions to feedback, co-ordinating coherent messages and understand the purpose of each message are the four key principles for successful communication.