Accounting: Important Role in Business Decisions

Introduction

This paper seeks to define a word or a concept or an object idea in such a way that a reader is able to understand precisely what is meant by the word being defined, analyzed, described, discussed and explained. This paper has chosen to dwell on the word accounting by applying several rhetorical strategies to understand the concept.

Approaching the meaning of accounting from a creative manner

Business persons go into business because there are needs and wants of people or customers to be satisfied. But before this could be done, there is a need to have investors who will have to take risks of their capital invested in a business organization. In return for these risks, these businesspersons expect to have sufficient return for their investments. Before they could know that they are getting sufficient return, there must be a way to tell them. They therefore need information for them to make decisions in business. This information is called accounting.

Definition of the word accounting

Accounting is sometimes defined as the art of recording, classifying, summarizing transactions and events of financial character, and interpreting the results thereof. This is the called procedural definition of accounting since it tells how the information is to be kept and eventually applied for decision making. Although it is procedural, the definition is implying the deeper purpose of accounting because of the process of interpreting the results. Thus the clear purpose of accounting is for decision making.

Accounting is also termed as the language of business. This would seem to be a logical conception of accounting as it is an information that must be communicated in order to make a decision. There must be basis therefore, in saying that it is a means by which businesspersons will have to understand each other. A language like the English language keeps people connected since by such means they understood each other.

The English language has not only become understood by the English people, but it has become a means of communication across different cultures or different nationalities.

In the same way, accounting has become international since there is now the practice of putting up of international accounting standards which could be used not only by the American companies in the United States by all over the overworld. These standards are sometimes called generally accepted accounting principles since they guide the preparation of financial statements, which are the end product of the accounting process as defined earlier and which are subject to interpretation by users.

Using other rhetorical strategies to support the definition of accounting

This part will now use rhetorical strategies to make the message of this paper more powerful and so that the readers could relate accordingly.

The first one is through exemplification. By exemplification, there is a need to cite cases in point or personal experience to illustrate accounting. Any businessman will agree that each will have to know accounting if one is earning or losing in a business, and the same information will cause that person whether to continue with his or her business.

The second strategy used here is description, where most peoples perception of accounting is being analyzed. Accounting information to be useful must have qualitative characteristics of being accurate, relevant, reliable and timely. Accuracy is very important because if there is wrong information used as premise, the logical result would be a wrong decision.

The third strategy being used now is narration where this paper will recount an anecdote or experience or event in relation to accounting. As earlier stated, accounting is used as information by decision-makers may be appreciated in how investors of Lehman Brothers, Enron and other corporations are make. If one will have to go back in time, investors could be presumed to have been motivated to have invested with the stock of these companies as they see how profitable, liquid and solvent these corporations then. However, although accounting information may have the characteristic of being accurate, it cannot assure that the decision would always be correct.

As what happened investors in the case of Lehman and Enron, investors could lose money in an instant because the value of investments as may be represented by the accounting information does not guarantee that the decisions made are always correct. One will just have to imagine what happened to the investors of said companies after their corporate problems.

The fourth rhetorical strategy that could be applied in this paper is comparison and contrast. Accounting could be compared with finance and bookkeeping, and the reader must have known that there is such a difference among these concepts. The term is accounting is commonly associated with finance function in an organization. It may be noted however accounting is different from finance. Finance as a function makes use of accounting for the purpose of maximizing stockholders wealth. Accounting is also different from bookkeeping since bookkeeping may refer only to the clerical phase of accounting where recording is done in a systematic manner.

Another rhetorical strategy that could be applied in understanding accounting is division and classification.[9] Accounting may be classified into external accounting and internal accounting. The first type caters to the users of the accounting information to those outside the confines of management of the business. Hence this type of accounting is referring to investors or would be investors as well as creditors of a given business organization who make use of accounting for their decisions. As contrasted from external accounting, the concept of internal accounting refers to information for the use of internal users of the organization, and this is normally equated with management accounting. Management accounting may further include cost accounting, where management will deal particularly with unit costs, variable cost and fixed cost for the purpose of accomplishing what is efficient and effective for the organization.

This paper has also applied cause and effect analysis by stating that one wanting to grow or to profit from investing by the use of accounting as an information must be convinced numerically that the company is earning as determined by its income statement and that the business can readily meet its current obligation and it has solvent position based on balance sheet to afford the company expansion without having to face too much risk because of faulty capital structure.

This paper is also applying argumentation as a rhetorical strategy since it has argued that the use of accounting will generally help the users to make the proper decision if the accounting information has the characteristics of accuracy, relevance, timeliness, and reliability. However, the world is imperfect where people could still commit mistakes because of changes in many other conditions which may not be readily predicted by the decision-maker. Hence decisions based on accurate, relevant, timely, and reliable accounting information could still be wrong.

Conclusion

This paper has analyzed what is accounting and how it is made different from other terms which are commonly associated with it.

Vivid examples of the accounting concept and its application to specific situations are illustrated. The use of the different rhetorical strategies was very helpful in bringing to the reader the meaning of accounting to decision makers. Accounting as described must indeed be playing a very important role in business decisions.