Each business must have enough money for the cost of doing business but still have adequate money left over. If the cost of business costs more than operating the business, then that is when a business will start to crumble. The need to earn money to hold an investment capital is known as profitability.
However, a business must meet the goal of liquidity.
Liquidity refers to having the money available to pay off debts when they are due.
For example, a real estate company must meet the goal of profitability by leasing as many houses as they can, but they also must meet the criteria of liquidity when customers do not come up with the capital to pay sometimes.
Both goals must be aced by a company to be successful in their ventures.
All businesses try to pursue their goals by engaging in these similar activities.
Businesses must start some financial activities to get enough funds or capital so they can continue their operating.
Financial activities include receiving capital from creditors such as banks and other suppliers.
On the other hand, they also include paying creditors back.
Businesses must also participate in what is known as investing activities.
This refers to the productive spending of capital so that it will help a business attain their goals in an orderly manner.
Some examples of investing activities include purchasing land, equipment that the business may need, and buying buildings.
These resources are then sold or discarded of when they are no longer needed.
Another essential of every business is participating in operating activities.
Besides selling goods and services to customers, operating activities include hiring managers, workers, purchasing goods and services, and paying back taxes to the government.
An extremely crucial function of accounting is to provide performance measures.
This refers to the measures of a business that indicates whether managers are achieving or losing their business goals, which helps to determine if a particular business is under good management.
It is crucial for the performance to measure up with the goals of a business.
Since most managers are evaluated by whether certain aimed goals are accomplished, they must have a very sound understanding of accounting.
Since managers will try to achieve these goals, they must be motivated so that they can perform in the best interest of a business.
The typical accounting role of helping decision makers by processing, and communicating information effectively is furthermore divided into the subcategories of financial accounting and management accounting.
Financial accounting is used for generating reports and communicating between outside decisions makers to analyze how well the business is performing.
The reports to the outside decisions makers are known as the financial statements.
Companies whose stocks are up for grabs on the New York Stock Exchange send their financial statements to its owners or shareholders, and several of other creditors.
The financial statements reflect the goals of profitability and liability and are used heavily by every person involved with the business.
If you have any type of business, it is crucial for you to be literate in financial statements.
They are the back and bone of accounting.
It is critical to distinguish the system of accounting from the ways that information is processed such as bookkeeping, and some type of information management system.
It is only a small part of accounting, but it is a very important method.
The major goals of accounting are to analyze and interpret information.
The computer is also an important tool in accounting and is used to retrieve and organize information in great time and accuracy.
However, people may assume that the computer does all the work for the accountant, but that could not be farther from the truth.
