2. Accounting as a source of information

ACCOUNTING AS ASOURCE OF INFORMATION

Accounting is a definite process of interlinked activities that begins with the identification of transactions and ends with the preparation of financial statements.

Every step in the process of accounting generates information.

Generation of information is not an end in itself. It is a means to facilitate the dissemination of information among different user groups.

Such information enables the interested parties to take appropriate decisions. Therefore, dissemination of information is an essential function of accounting.

To be useful, the accounting information should ensure to:

• provide information for making economic decisions.

• serve the users who rely on financial statements as their principal source of information.

• provide information useful for predicting and evaluating the amount, timing and uncertainty of potential cash-flows.

• provide information for judging management’s ability to utilize resources effectively in meeting goals.

• provide factual and interpretative information by disclosing underlying assumptions on matters subject to interpretation, evaluation, prediction, or estimation.

• provide information on activities affecting the society.