Importance of data in accounting and parties interested in accounting information

The term “data” refers to primary details or numerical facts relating to an event or transaction. Data is stored and maintained on a computer or network. Computer software such as HiTech Financial Accounting processes this electronic data. Data is also maintained as a hard copy or paper printout. Since accounting is limited only to transactions and events of a financial nature, accounting data consists of facts of a financial nature relating to transactions and events of a business entity for the accounting period. In addition, accounting data must be supported by receipts. This is how documents known as vouchers support the data. Normally, data in its raw form is disorganized and disjointed. It’s not understandable. So, accounting processes raw data into finished form of “information” to make it useful and meaningful so that it can be used by the different users of accounting information in the decision-making process.

Thus, accounting data processed by the accounting cycle produces accounting information. Data is collected, recorded, classified, grouped, scored, tabulated, organized, summarized in order to present it in the form of information for use by users to enable them to make decisions.

Accounting data consists of financial transactions and events related to a company for the accounting period, supported by vouchers (vouchers). For example, incoming and outgoing payments are documented by receipts from the payee Purchases by invoice, sales by outgoing invoice, returns received by credit note; return to the outside by debit note; Expenses through invoices or payment slips etc.

Therefore, the first and most important function of accounting is to collect the data supported by the receipts to ensure their authenticity. Accounting processes consist of recording in the books of the original transaction (journal or sub-journals); Classify (posting in the general ledger) Grouping (posting transactions of the same type in one place on one account) Valuating (determining the value at the end of the year through balancing or valuation) Tabulating (creating lists of balances and checking the arithmetic correctness) and preparing annual financial statements (trading and Profit and Loss Account; Balance Sheet) in report form to transmit the information.

Today’s computer accounting software can do this job very efficiently in a short amount of time. Accounting information is mainly presented in the form of financial statements such as income statement (commercial and profit and loss account) item statement (balance sheet). Today statement of changes in financial situation; Value Added Statement; Personnel accounting report; Social performance reports, etc. are part of the accounting information

Difference between data and information

Data

1. Relates to details, facts about any event.

2. Is generally disorganized and incoherent in form.

3. Is in raw form and is entering accounting.

4. Cannot be understood or used by users.

5. Information doesn’t matter.

information

1. Relates only to the events related to entities.

2. Is properly arranged, classified and organized.

3. is in the finished form and is the output of accounting.

4. Understood and used by the users of the accounting information to make their decisions.

5. Information is based on and derived from data.

Parties interested in accounting information

Accounting information is of interest to various people who are directly or indirectly involved with a company.

Management:

A small business is usually run by a sole proprietor or by the shareholders. However, a large corporation is usually run by a public company that separates management from ownership. The managers’ responsibility is to run the business efficiently and maximize return on investment without jeopardizing the fund.

Management needs accounting information

(1) selection from alternative proposals;

(2) control of acquisition and maintenance of inventories (stocks), cash receipts and payments;

(3) planning or budgeting for the future

(4) evaluation of performance and

(5) Devising remedial actions for deviations of actual results from budgeted targets.

Owner:

Although the owners are beginning to put capital into the business, they are the last to get their claim on the return on equity on their investment. This applies not only to the repayment, but also to the reward of their capital. After all fees are paid, including employee salaries and lender interest earnings, the earnings can be distributed as a reward on capital. Of course, the owners are interested in the security of their capital and an appropriate return based on the stability and prosperity of the company. Accounting reports (annual) not only evaluate past performance, but also help assess the future prospects of the company. Such information is also very important for interested parties.

Creditor:

Can be short-term, namely suppliers of goods, lenders for temporary advances, or long-term, viz. Mortgages, bondholders, etc. Although both are interested in the stability and earnings of the debtor company, the former pays particular attention to its short-term solvency, i.e. liquidity, while the latter is interested in the long-term solvency of the company.

Government:

Many products today are subject to excise duty and sales tax. The government also regulates the prices of essential goods, e.g. Drugs, vegetables, oil, etc. Therefore, the government is interested in knowing the cost information to manage excise taxes and regulate the prices of products. The government is also interested in accounting information on profits for income tax purposes.

Employee:

Permanent employment and company stability belong together. Here, too, the unions are interested in sharing the company’s profits in the form of bonuses. Therefore, of course, the employees are interested in the accounting information of the annual reports.

Consumer:

Price increases are rejected in almost all quarters. Accordingly, a manufacturer strives to reduce its product costs as well as its selling price. Consumer protection associations have recently been formed to control business and industry and to make them aware of their “social responsibility” towards society. Therefore, consumers also need billing information.

Researcher:

The annual financial statement as a reflection of the business situation is of inestimable value for economic research. These statements are therefore of great interest to scholars researching accounting theory and business matters and practices.

The type of business income

One of the main goals of financial accounting is to determine whether the business operation was profitable or not. Accounting allows us to find out whether a company made a profit or suffered losses during the accounting period.