Accounting Is Dubbed “Language” of Business Activities
Essential link in objectives of business —–‘Accounting is dubbed “language” of business activities conducted by firms as it is used to communicate business transactions per se to all stakeholders’ According to Weygand, Kieso and Kimmel (2012, p. 4), the main purpose of accounting is consists of three basic activities, identifying, recording and communicating the business events by users. These three activities help the firm to operate the business to make decision be meaningful.
Business has closely connection when doing transaction with their stakeholders by using the accounting, in order to make maximize profits.
Role of firm Firm (also known as business or enterprise) is an organization involved trade goods and services to consumers. Business use different models and plans to figure out their target and outcome, in order to achieve organizational goal and achieve sufficient profit to finance our company growth, which create value and wealth for our shareholders. There are three forms of ownership, proprietorship, partnership and corporation. Every type of business receives different targets and objectives; it is because the employer or shareholder is taking different level of risk and responsible.
Each organization’s employer sets its objectives to overcome difficulties. It relates to produce in different firms with different types products and how to satisfied their consumer, such as restaurant produce well-prepared food to hungry customers and cars factory fabrication and assembly of cars to produce in high-quality to buyers. Therefore, the method used or issued meet should be different. Each type of business system will meet different levels of target. The objective, however, is quite similar to each other. As Edmonds, McNair and Olds (2006, p. ) mentioned, in most cases, the companies aim to satisfy consumer preferences efficiently (at lowest cost) and aftermath with higher earnings. During business transaction, the main purpose for firms is to obtain maximize profits and the buyers to pay at least amount of money. Otherwise, the loss will lead firms be bankrupt and result in unemployment rate increased. Business Transactions Business transactions are recording the business’s economic events by accountant. The economic events such as transaction are passing through accounting process of organization to users.
The accountant records the transaction when the financial position (assets, liabilities or equity) of the company changed. In addition, the accounting equation must include the transactions, two or more items, which have dual effect and could be affected. There are two types of transactions which called external and internal. External transaction is record business events between the company and some outside enterprise. For example, LMS pizza shop purchases of cooking machine (equipment) from a supplier, and then sale the piazzas to customers are related to external transactions.
Different to external transaction, internal transactions are economic events that occur all within one company. The use of cooking and washing machine (supplies) are internal transactions for this company. However, the company must analyze each event to illustrate if it affects the components of the accounting equation. For example, the company ordered additional films at $1000. This event will not be record. In the reason, the company’s financial position does not change during this activity. But if there is deposit that company needs to pay.
Then the accountant should record this transaction. The accountant has ability to decide which transaction should be record. Determine the Value changing International Financial Reporting Standards (IFRS) companies can apply fair value to property, plant, equipment and natural resources. The companies can sell the assets to fair value at the reporting data. If revaluation is used, business needs to follow the revaluation procedures. Assets that are experiencing rapid price changes must be revalued on an annual basis. Otherwise, less frequent revaluation is acceptable.
However, most companies choose to remain the original cost they paid instead to revalue. It is faithful to represent the fair value and the negative effects on the net income. Business should evaluate the faithful representation and relevance of trades-off in any case and determine the importance that the company considered at. To illustrate asset revaluation accounting, assume that an organization called as LMS pizza shop, they purchased the used machine to making pizza for $10,000 on March 11, 2013. But at the end of May 2013, the cooking machine is increased its wealth value to $13,000.
At this time, the accountant has two decisions to record this value changed. One is to revalue the price and another one is to keep it remains the same. However, this action should consider by the company own perspective. It is because the revaluation is affecting the net income. In the short summary, if it is the case that the value falls, the company gets positive effects on the net income. Otherwise, the company obtains negative effects on the net income. Finally, the company can fetch a higher price if sold the assets at the reporting date. Essential link in objectives of business
Target as the core of growth for companies. During operation, companies have many decision-makings, like which firm is better to award of contract and which firm can bring most benefits. These decisions are related to company’s benefit (profit), which are the business objectives. This is because the business objectives are the main purpose for running business to obtain maximum profit at lowest cost. The statement is more clearly to anyone, even who outside the organization. It is benefit for everyone to use the information of financial accounting.
Especially is for investors, creditors and other external users. That is all of the fundament about financial accounting. According to IFRS, there are two measurement principles they usually use, the historical cost principle or the fair value principle. By using these two principles, company can clearly be seen in the earning profit or loss. According to Williams, financial accounting is wide range uses in the business community nowadays (Williams et. al, 2011). Any decisions that the business makes need to concern about all of three activities in accounting quation. The companies all predicate of the objectives that is bringing as much as profit to them. Summary Accounting as a major indicator for simply convenient operation and shorten the time to achieve company’s goals. It is not only a kind of business language, but also a tool for measuring the target for company. As a business tool, it help employer to narrow the distance with all stakeholders in any transactions, hence to help achievement of objective and then obtain higher rate of return in anytime. Words: 1068
Reference * Weygandt, J, Kieso, E& Kimmel, D (2012), Financial Accounting (IFRS edition). WILEY. USA * Edmonds, T, Edmonds, C, McNair, F& Olds, P, (2006), Fundamental Financial Accounting Concepts (5th edition) McGraw-Hill Companies, Inc. New York * Williams, Haka, Bettner, and Carcello (2011), Financial Accounting: Including IFRS, Financial Accounting (Fourteenth Edition, McGraw-Hill Companies, Inc. New York * International Accounting Standards Board (IASB), retrieved from http://www. iasb. org/