Accounting is not just the gathering and reporting of a financial history of an institution,
it is also an explanation of a company’s past financial activities. Its procedures also safeguard
against corruption and scandal. Due to these factors, all business students should have some
accounting education to improve business and investing decisions and to prevent scandals.
Accounting improves business decisions by reporting past financial history. A manager
can examine his competitor’s cash flow and income statements to determine the amount of
inventory and cash available. With this information, he can refine his business strategy to gain a
competitive advantage. The human resources department uses financial reports to measure the
performance of the CEO to calculate a bonus. Salespeople can gain a comparative advantage by
understanding the strengths and weaknesses of their own firm or their competition.
It is also important, as upper management, to keep the company financially secure and
prevent scandal and corruption. With the recent Enron and WorldCom scandals, accounting has
become more important than ever in preventing against scandals. It is upper management’s
responsibility to the stockholders to ensure the validity of financial reports. These recent events
have increased the standards of accounting practices; thus, it is to a business student’s advantage
to understand accounting. This knowledge could be the reason for promotion.
On a more personal level, an investor might use accounting to make investing decisions.
Investors can use the balance sheet to divide total current assets by total current liabilities, thus,
creating the current ratio. They can then use this ratio to evaluate a company’s ability to meet
near term commitments. Investors can also use the income statement to find out net income to
determine the current success of the company. Accounting information, therefore, provides a
considerable advantage to people who understand financial reports. Consequently, it is
important for all business students to understand some accounting.