Walgreen Co. www.walgreen.com is a nationwide store chain and has over 3,000 stores and pharmacies and is a retail store phenomenon and has over 27 years of record crumbling sales. Wow what's the secret Walgreen? Why are you so successful?
Well, customers like their high class customer service, their huge selection, and quality products. Some investment and other companies with a financial interest in Walgreen look at the past success of the company and evaluate its financial management. The companies that are interested will be seen in the Financial Highlights from the company's annual report. Net sales, total assets, net earnings, and stock holder's equity are all terms that are used to measure the financial stake of the company.
It's nice that you see the large increase in Walgreens over the years, but what exactly does that mean? What financial knowledge is required of those who manage Walgreens and what methods do they use to measure Walgreens to other large companies? Walgreen's managers most be very skilled in accounting to help maintain the financial stake of the company.
However, Walgreen' managers are not the only ones that need to be skilled in accounting. The people who have some type of financial stake in the business such as owners, investors, attorneys, employees, and creditors must also be skilled in accounting so they can analyze the financial achievement of the company. Anyone who is interested in any one of theses roles will require some knowledge in accounting knowledge and processes. That's what the purpose of accounting is.
Contemporary accountants focus on the needs of decisions in accounting information, whether these decisions are internal or external to the business. Accounting can be defined as a systematic information system that measures, process, and produce financial information about an economic matter such as a business or a government organization. Accounting serves as a connection between business activities because it records information.
First, accounting analyzes business activity by recording data for them that they can use in the future. Second, the data is not used until it is needed and retrieved when the time is appropriate. Last, the information is analyzed and communicated through reports to the decision makers. One might assume that the data about business activities are the input and the information for decision makers are the output. A business is an economic entity that sells goods or services to customers at prices that will provide a return to the owners. Here is a list of well branded business that sell goods:
General Mills Inc. www.generalmills.com sells food products.
Sony Corp. www.sony.com sells a variety of consumer electronics.
Hilton Hotels Corp. www.hilton.com sells resorts and hotels services.
EBay Inc. www.ebay.com offers an online bidding service.
Despite their differences in the products they sell they actually have a lot in common. Each business must have enough money for the cost of doing business but still have adequate money left over. If the cost of business costs more than operating the business, than that's when a business will start to crumble. The need to earn money to hold an investment capital is known as profitability. However, a business must meet the goal of liquidity. Liquidity refers to having the money available to pay off debts when they are due.
For example, a real estate company must meet the goal of profitability by leasing as many houses as they can, but they also must meet the criteria of liquidity when customers don't come up with the capital to pay sometimes. Both of these goals must be aced by a company to be successful in their ventures. All businesses try to pursue their goals by engaging in these similar activities. First, businesses much start some financial activities in order to get enough funds or capital so they can continue their operating. Financial activities include receiving capital from creditors such as banks and other suppliers. On the other hand they also include paying creditors back.
Second, each business must participate in what is known as investing activities. This refers to the productive spending of capital so that it will help a business attain their goals in an orderly manner. Some examples of investing activities include purchasing land, equipment that the business may need, and buying buildings. These resources are then sold or discarded of when they are no longer needed. Third, another essential of every business is participating in operating activities. Besides selling goods and services to customers, operating activities include hiring managers, workers, and purchasing goods and services, and paying back taxes to the government.
An extremely crucial function of accounting is to provide performance measures. This refers to the measures of a business that indicates whether managers are achieving or losing their business goals, which helps to determine if a particular business is under good management. It is crucial for the performance to measure up with the goals of a business.
For a quick example, earned income is a measurement of profitability, and cash flow is the measurement of liquidity, pretty simple right? Since most managers are evaluated by whether certain aimed goals are accomplished, they must have a very sound understanding of accounting. Since managers will try to achieve these goals they must be motivated so that they can perform in the best interest of a business. The typical accounting role of helping decision makers by processing, and communicating information effectively is furthermore divided into the subcategories of financial accounting and management accounting. Financial accounting is used for generating reports and communicating between outside decisions makers to analyze how well the business is performing. The reports to the outside users are known as the financial statements. Companies who stocks are up for grabs on the New York Stock Exchange send their financial statements to its owners or shareholders, and several of other creditors. The financial statements reflect the goals of profitability and liability, and are used heavily by every person involved with the business. If you have ANY type of business, it is crucial for you to be literate in financial statements. They are the back and bone of accounting.
Now, let's not get some terminology mixed up with each other. It's critical to distinguish the system of accounting from the ways that information is processed such as bookkeeping, and some type of information management system. It's only a small part of accounting, but it is a very important method. The major goals of accounting are to analyze and interpret information. The computer is also an important tool in accounting and is used to retrieve and organize information in great time and accuracy.
However, people may assume that the computer does all the work for the accountant, but that couldn't be more farther from the truth. The truth is, the computer is instructed what to do by the accountant and the main use of computers is to process complicated information. Since computers are so beneficial and widespread many business use computers as a management information system. This is a system of connected subsystems that provide the necessary information to run a business. The accounting information system is without a doubt the most important subsystem used because it is the key role in analyzing and managing the flow of financial data of a business.
Jeff Casmer is an internet marketing consultant with career sales over $25,000,000. His "Top Ranked" Earn Money at Home Directory gives you all the information you need to start and prosper with your own Internet Home Based Business.