The general objective of financial accounting is to generate useful and timely information for decision-making by different users, in the same way it is the object of financial accounting: to control all financial operations carried out in entities. Finally, the objective of accounting is: to report on the effects that the operations carried out have produced on the finances of the company. In general terms, accounting can be defined as: the technique used to systematically and structurally produce quantitative information expressed in monetary units of the transactions carried out by an economic entity.
Accounting regulations
To achieve its objective, accounting is aided by tools such as: accounting principles, evaluation rules, presentation rules, financial statements, criteria, procedures, etc. The main purpose of accounting is to prepare quality accounting information. For that quality to occur. It must meet three essential characteristics: usefulness, reliability and provisionality. In order to comply with the characteristics stated above, those in charge of preparing and verifying the accounting information have as a frame of reference a series of broad action guides known as generally accepted accounting principles. These principles are contained in a normative character in bulletin A-1 of the Accounting Principle Committee of the Mexican Institute of Public Accountants.This newsletter serves as a starting point for others, who consequently cannot contradict it.
The Accounting Principles Committee of the Mexican Institute of Public Accountants, in its bulletin A-1, highlights that the objective of accounting is to facilitate decision-making by its different users (shareholders, creditors, investors, clients and employees). Consequently, as accounting serves a set of users, various branches originate, of which the most important are the following:
- Financial accounting.- is an information system that expresses in quantitative and monetary terms the transactions carried out by an economic entity, as well as certain economic events that affect it, in order to provide useful and secure information to users outside the organization. Administrative accounting.- information system at the service of the internal needs of the Administration, with guidance aimed at facilitating the internal administrative functions of planning and control, as well as decision-making. Fiscal accounting.- information system designed to comply with the tax obligations of organizations with respect to a specific user: the treasury.
The decision-making process in the business world.
In life there are many decisions that must be made, some may be very simple, but there are also those that involve quite sophisticated mental processes. In the complex world of business, there is a great diversity of decisions that an administrator must make, such complexity causes having to base any decision that is made not only on the information that we will call the technical dimension of solving a problem, but also that two other essential components are also used: the common world and experience.
The dose with which each of the factors is used will depend on the specific circumstance of each person. Thus, we will have that an administrator with many years of managing your business can base her decision on experience. Another manager or businessman with limited experience might initially base his reasoning on common sense (for some the least common of the senses). For a college student involved for the first time in the kinds of decisions that are typically made in the business world, financial or accounting information may be the basis for most decisions.
Type of decisions in a business
Now, not all decisions made in the business world are as simple as those made in daily life, regularly, we encounter problems that need more than common sense and experience to be able to offer a satisfactory solution. In principle, it is possible to group the various problems of a financial nature that may arise in a business into three broad categories: investment, financing and operation, which come to represent the three basic questions that we normally find both in some of the activities in the business. business world.
- What product or service is going to be acquired? Where am I going to obtain the necessary resources to acquire them? What am I going to do with that product or service?
In order to understand this assertion more clearly, it is convenient to illustrate it through the case of a person who is engaged in the provision of transportation services.
Investment decisions
The first question that this person would have to ask himself is what product he must purchase in order to provide the transport service. Your analysis should finally define whether it is appropriate to purchase a car, a truck, or perhaps a bus. Still, they would have to determine other factors such as make, model, transportation capacity measured in people, performance, engine capacity, etc. all the features announced above make investment decision making possible.
Financing decisions
The second question that the person in question would have to ask is where to obtain the possible sources of resources to acquire the transport equipment. You can decide to contribute your own money or such activity, or to obtain resources from bank creditors. If you decide on the second option, you must determine what type of loan you should manage, what term you could commit to pay, what interest rate the loan would cause, what guarantees you must provide to guarantee the loan, what financial information would be required by officials banks to assess their financial solvency, etc. All of the decisions exemplified above are included in the second category of decisions that are normally made in a company: financing decisions.
Operation decisions
Finally, the third question that the entrepreneur would have to ask himself, assuming that he has already decided which is the vehicle that constitutes the best purchase option for his purpose (investment decision) and what is the best way to obtain resources to finance the acquisition of the equipment of transportation from the previous point (financing decision), is what use will you make of that transportation equipment? Surely at this point you will have to make decisions such as: the price that you are going to charge for providing the transportation service, the hiring of someone to drive the vehicle, the definition of policies to offer maintenance and repair to the equipment, etc.
conclusion
From the example that we have just illustrated, it is possible to confirm that all the decisions made in a business can be grouped into one of the following areas:
- Investment decisions Financing decisions Operating decisions
For this reason, it is to be expected that you will need information to support the decision-making process in each of the areas already mentioned.
The following video from the School of Business and Management provides an introduction to the general concepts of financial accounting. A great learning complement at your disposal.
