Accounting for managers - Essay Example

Accounting for Managers By October 3, October 3, Accounting for Managers The field of finance and accounting is all about using limited data in the most efficient manner to make future decisions. Companies furnish financial data for their stakeholders using the standard accounting principle. “Companies that follow GAAP maintain their accounting records using accrual basis accounting.” (Reimers 2007)As the name suggests the accrual basis of accounting differs from the cash basis of accounting.

“Accrual basis accounting means that transactions that change a company’s financial statements are recorded in the periods in which they occur, even if cash was not exchanged.” (Kimmel, Kieso, and Weygendt 166) The managers are required to use the accrual basis of accounting because it exhibits a true picture of the financial statements comparable to that of the other businesses. This method requires fewer adjusting entries thus saving time and calculations. Different businesses have different policies in terms of payment and collections, this method ignores these time difference and focuses on the actual standing of the company based on the transactions rather than cash received or paid.

However, this method requires accounting estimates for example provisions for bad debt, historical price adjustments etc because of the time lapse between the occurrence of transaction and the cash received. Thus this method is required by the GAAP and managers use it because of its completeness, as it gives a comprehensive and comparable view of the firm’s financial standing in the market.Reference CitedKimmel, Paul D, Donald E Kieso, and Jerry J Weygendt. Financial Accounting - Tools for Business Decision Making. 6th. New Jersey: John Wiley and Sons Inc., 2011. 166.

Reimers, J. Financial Accounting. New Delhi: Pearson Education Inc., 2007. 624.