12 Mei 2022

Looking for Accounting in All the Right Places

Accounting extends into virtually every walk of life. You're doing accounting when you make entries in your checkbook and when you fill out your federal income tax return. When you sign a mortgage on your home, you should understand the accounting method the lender uses to calculate the interest amount charged on your loan each period. Individual investors need to understand accounting basics in order to figure their return on invested capi tal. And it goes without saying that every organization, profit-motivated or not, needs to know how it stands financially.

Here's a quick sweep to give you an idea of the range of accounting:

Accounting for organizations and accounting for individuals

Accounting for profit-motivated businesses and accounting for nonprofit organizations (such as hospitals, homeowners' associations, churches, credit unions, and colleges).

Income tax accounting while when you die you're living and estate tax accounting.

Accounting for farmers who grow their products, accounting for miners who extract their products from the earth, accounting for producers who manufacture products, and accounting for retailers who sell products that others make.

Accounting for businesses and professional firms that sell services rather than products, such as the entertainment, transportation, and healthcare industries.

Past-historical-based accounting and future-forecast-oriented accounting (budgeting and financial planning).

Accounting where periodic financial statements are legally mandated (public companies are the primary example) and accounting where such formal accounting reports are not legally required.

Accounting that adheres to historical cost mainly (businesses) and accounting that records changes in market value (mutual funds, for example).

Accounting in the private sector of the economy and accounting in the public (government) sector.

Accounting for going-concern businesses that will be around for some time and accounting for businesses in bankruptcy that may not be around tomorrow.

Accounting is necessary in a free-market, capitalist economic system. It's equally necessary in a centralized, government-controlled, socialist economic system. All economic activity requires information. The more developed the economic system, the more the system depends on information. Much of the information comes from the accounting systems used by the businesses, insti tutions, individuals, and other players in the economic system.

Some of the earliest records of history are the accounts of wealth and trading activity. The need for accounting information was a main incentive in the development of the numbering system we use today. The history of account ing is quite interesting (but beyond the scope of this book).
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