From the course: Understanding Business

Accounting basics

From the course: Understanding Business

Accounting basics

- Money. It's the lifeblood of the organization. It needs to flow. Customers pay the company, the company pays employees and suppliers. What happens when that stops? When customers stop paying the company or when the company stops paying employees and suppliers, the company is likely doomed to fail. Keeping track of the money flow is the job of accounting. They're responsible for tracking the money coming into the company, and also the money flowing out of the company. But they're also responsible for keeping track of the money flowing inside the organization from one department to another, and this explains why companies have both managerial accountants and financial accountants. So what do managerial accountants do? Their primary purpose is to track the money. Who's using it wisely? Which departments are wasting money? This is important for creating budgets and making good decisions for the future. Also, because they watch where every single dollar goes, managerial accountants are the ones that can tell us how much it costs to make and deliver a $1,000 cellphone to the customer. Plus, managerial accountants find ways to help the company minimize taxes. So managerial accountants are reporting for executives inside the company. Financial accountants, on the other hand, develop reports for people outside the organization, specifically financial accountants develop financial reports for investors, potential investors and companies that might lend our company money. Both investors and lenders are interested in our company's financial situation. So, throughout the year, financial accountants create quarterly reports and the all important annual report. Both the quarterly report and the annual report provide financial data, a written recap of the events and their financial impacts, as well as statements of concern and opportunities for the company in the future. Since the reports will impact investors, lenders and corporate employees, by law, this report must be truthful and accurate, not misleading any parties inside or outside the organization. Developing this report can be a very stressful job. Money is important to every organization, and thus, so are the accountants. Accountants help the company learn from its past, understand its present financial health and they also help us plan for future growth.

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