Purpose of Accounting

Purpose of Accounting Accounting is a service activity. Its function is “to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions in making reasoned choices among alternative courses of action” (Raiborn,& Watson 2003). The main purpose of accounting focuses on the preparation of pertinent financial reports, which will give internal and external parties the essential information that is needed to access the health of a company or organization. Information obtained in these reports determines a stability of a company's which provides insight needed to make sound financial decisions. During the accounting process, systems and processes are developed to enable a company or organization the ability to see and control the financial flow inside and outside of the business. Accounting means the ability for a business to discipline itself to certain principles which allows for the recording, analyzing, and retrieval of critical financial information. Recording financial activities which has an impact on the organization as a whole, includes all purchases, sales, the acquisition of capital and interest earned from investments, which can be listed in terms of a financial gain and posted to a specified account as an accounting record. In business, accounting and financial statements are the means for communicating the numbers (Weygandt, 2007).

This means of communication is primarily done via financial statements. In the classic movie Jerry Maguire, Cuba Gooding Jr’s famous line, “Show me the money!” explains what financial statements do. They show individuals the money. They show individuals where a company’s money came from, where it went, and where it is now (SEC).
There are four types of financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) retained earnings statement. Balance sheets show what a company owns and