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Faculty of Business and Economics

Master Program of Business Administration
Accounting Principles
ACCT 130




The Importance of Accounting Data



By
Tariq Marwan Hussein


Prepared for
Dr. Zeyad Munawer
January 18, 2014
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Abstract
This report aims to present and find the importance of accounting data that can
help economic entities in dealing with daily operations and problems. In this report we
will try to focus on the importance of accounting data for managements and for external
non primary users of this data.


Introduction
As any branch of science, accounting has been developing to meet the
requirements of the economic and social progress. The rapid development in economic
and social systems gave the accounting science a leading role in guiding economical
facilities; provide them with necessary information in making decisions and planning for
short and long term strategies that help facilities to achieve its goals.
We can define accounting as collection, recording, processing and storing
financial transaction occurred in a specified period of time. Thus, from this definition we
can say that it is all about numbers. Knowing the numbers is very important to see we
your business is standing, however it is not quite enough. Businesses need a way to
deliver and communicate its numbers, and the way to do that is through financial
statements. But, the questions are: What to do with these data? What are the benefits
of using such a data?
Accounting data is a fundamental source of internally certified information about
the performance of all departments of any firm, and it provides, as a form of financial
statements, valuable information about the financial position of any firm. These
statements are designed to provide firms managements with reasonably accurate
information to help them make short or long term decisions. There are many users that
can benefit from these numbers and figures. In this report we will focus on the
importance of accounting data for managers to evaluate the performance of their
businesses and their employees, and the importance of these data for any external
users as Investors, creditors.



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Users of Accounting Data
The main objective of accounting is to provide information in reports or in
statements which can be used by different kind if users. This kind of data can be used by
two types of users, internal users and external users. Internals users or primary users
are managers who use this data to plan, run and control business, in other words inside
or internal users mean management. Employees use accounting data to assess the
company in a profitable way. Owners of business use accounting data in analyzing the
profitability of their investments in business and to determine any future action.
External users or secondary users are outside people and organizations from
outside company who want numbers and figures that define a business interested in.
Investors for example are external users, who need accounting data in the form of
statements and report to make a decision where they should invest their savings.
Creditors use accounting data to measure the business financial health.

Role in Decision Making
Accounting information is needed before making any decision by managers or by
external users. All the recorded data about the transactions happened in business will
be used to guide any future decision. It can help in the area of budgeting, investigating
and forecasting. Managers need to be provided with an accurate financial data in order
to strategically plan and move forward with actions. If financial data is faulty or wrong, it
will be a disaster to business since decisions were made based on wrong information.
External decision makers as investors and creditors also have an interest in how
businesses performing financially. Accurate financial information in the form of reports
and statements are essential to external users to make their decision.
Accounting data provides management with data needed to determine whether
a business is at a loss or a profit, how much debtors owe, liability to others and other
financial information. Accounting data measures business transactions and it can help
managers in the right direction. Basically accounting data is a tool for management to
help make business decisions on a timely manner. The key is that accounting gave them
the clue that something may not be going according to plan, playing an important role in
business management.


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Financing
Accounting data is used by company and l investors to determine funding needs for the
organization. Businesses analyze revenue to determine how much money would be
available to fund upcoming projects. If there is a gap in revenue, then you know that
you need to search for funding. Investors and lenders look at companys assets and
liabilities to determine if the company is a safe investment or not. Moreover, managers
should use accounting information to see where the business is cash-wise and to plan
for financing and other strategies for short-term and long-term planning.

Budgeting
Information relevant to income, purchases, and investments is critical in creating
the budget for the new financial year. The information gathered by the accounting
department is used as a baseline to measure actual performance for the year and
understand the basic costs of company operations. Budgeting, which is an estimate of
income and expenses for a certain point in time, is a guide to ensure that a business is
on track. Managers should be aware of budget numbers and how they compare to
actual numbers. For example, if an expense number is almost over budget, managers
can research the reason for the excessive expense in that and make decisions about
that.

Growth
Company growth is carefully considered in business plans. When the company
plans its growth, it first looks at accounting data to determine its revenues and
understand how the company spends money (Calculate Expenses). Accounting
information is critical in determining how much the company can take on in liabilities
and costs as it tries to make the right decisions on how to expand revenues by
expanding target markets, expanding market shareetc.

Control, Forecast and Crisis
Another function of accounting data is control, which includes checking on how
business in a company is conducted and performed in comparison with the information
provided by the recorded and stored accounting data. One of the most important
functions of accounting is the function of forecast. This includes determining the trends
of future processes, strategies and actions to take based on accounting information
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relating to a period of time, for example, entering a n new market need a deep study of
the financial position of business.

Accounting could be an instrument of recording data, which can only provide
information about the problems existing into an economic entity or public institution,
but without providing solutions. However it is important to remember that the first step
of solving a problem is to be aware of the situation and to know its details. The
information provided by the accounting records and financial statements take us to the
root of the problems, helping the company to eliminate the causes of crisis and
problems.





Conclusion

Accounting data provides valuable information to businesses control procedures
that help to solve and avoid businesses problems which can result from many reasons. It
is produced by the business employees and managers and then used by them again to
evaluate performance and control business operations. Businesses have to provide
accurate and reliable accounting information on their activities and operations and to
pay more attention to accounting and financial data to assure stability of businesses.

The role of accounting and accounting data is beyond collecting and recording
financial transaction incur within business, it is about interpreting theses data and
information to provide solutions to develop, grow, increase profit and to find solutions
for any problem may occur in businesses.

The economic instability makes strict and tough control on businesses
operations a necessity to every business. Also, the success of any business relies in using
accounting data in the correct time. Accounting data makes business adaptable to
market changes by madding accurate and on time decision by business managers.

We can summarize the importance of accounting data by a quote for Theodore
Roosevelt saying Do what you can, with what you have, where you are
[1]
. Reflecting
this quote to business world, companies must use their best using all resources they
have in their target markets, but deciding what you have of resources, when and where
to use it can be done by using the accurate collected accounting data on time.



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References
1. Hogget, J.R., Edwards, L., & Medlin, J., Accounting in Australia, Fifth Edition,
Chapter 1, Decision Making and the Role of Accounting.

2. Brownell, Peter. 1980. A working paper of THE ROLE OF ACCOUNTI NG
DATA I N PERFORMANCE, EVALUATI ON, BUDGETARY
PARTI CI PATI ON AND ORGANI ZATI ONAL EFFECTIVNESS,
Massachusetts Institute of Technology.

3. Anthony G. Hopwood. J ournal of Accounting Research Vol. 10, Empirical
Research in Accounting, 1972.

4. TOTH, ZSUZSANNA. P.H.D paper of The Current Role of Accounting
I nformation System, Vol. 8. 2012.