Business Lesson: Why We Need Accounting

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As an employee, lender, manager, or investor it is important for you to have a basic understanding of accounting. That is why I have these business lesson, to help you understand the need  and grasp the basics.

This lesson explains why we need accounting…

Consider this explaination from the 7th Edition of Accounting Principles in which the authors Kimmel, Kieso, and Weygandt put forth some valid points.

The rise of accounting came about in the industrial age when they’re became a separation between owners and managers. The owners needed something to indicate the financial status of the company. This is where the overall practice of accounting started. Over time, there were some major misdeeds in the corporate and accounting world, therefor the rules and regulations surrounding accounting was heavily increased. This led to the Sarbanes-Oxley Act in July of 2002.

Overall, lenders and investors need financial statements to understand the financial health of the company. Managers and employees will be able to find areas that they are doing well in and areas that may need improvement. If these documents are forged on a large scale, it would be a huge hit to our economy because we would lend to those companies that were failing and management would have the wrong idea of how well the company is doing.

As an employee, it maybe required that you review financial statements with your manager. Or you just may get an email with financial information and may not understand what it means to you. My basic lessons every week should give you some understanding into the world of Accounting. Hope it helps…

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