Accounting organizes and summarizes economic information so that decision makers
can use it. The information is presented in reports called financial statements. To prepare
these statements, accountants analyze, record, quantify, accumulate, summarize,
classify, report, and interpret economic events and their financial effects on the organization.
The series of steps involved in initially recording information and converting it into
financial statements is called the accounting system.Accountants analyze the information
needed by managers and other decision makers and create the accounting system that
best meets those needs. Bookkeepers and computers then perform the routine tasks of
collecting and compiling economic information. The real value of any accounting system
lies in the information it provides.
Consider the accounting system at your school. It collects information about tuition
charges and payments and tracks the status of each student. Your school must be able to
bill individuals whose balances are unpaid. It must be able to schedule courses and hire
faculty to meet the course demands of students. It must ensure that tuition and other cash
inflows are sufficient to pay the faculty and keep the buildings warm (or cool) and well lit.
If your experience is like most students, you can find some flaws with your school’s
accounting system. Perhaps there are too many waiting lines at registration or too many
complicated procedures in filing for financial aid. If you are lucky, you have experienced
electronic registration for courses and made all your tuition payments in response to bills
received in the mail. The right information system can streamline your life.
Every business maintains an accounting system, from the store where you bought this
book to the company that issued the credit card you used. Mastercard and Visa maintain
very fast, very complicated accounting systems. At any moment, thousands of credit card
transactions are occurring around the globe, and accounting systems are keeping track of
them all. When you use your charge card, it is read electronically and linked to the cash
register, which transmits the transaction amount over phone lines to the card company’s
central computer. The computer verifies that your charges are within acceptable limits
and approves or denies the transaction. At the same time the computer also conducts
some fairly careful security checks. For example, if your credit card were being used
simultaneously to buy groceries in Ithaca and to make long distance phone calls in Korea,
the credit card computer might sense that something is wrong and require you to call a
customer service representative before the charges were approved. Without reliable
accounting systems, credit cards simply could not exist.