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Why accounting is important

by Arley Avila

One of the most important aspects of keeping a business together and functioning, is to keep the numbers organized and to be able to communicate to the stakeholders and other parties financial information about the company either for internal benefit or for external information. 

This way of communicating, interpreting, summarizing, is what we know as accounting or the accounting process. Accounting has typically two fields that are the most relevant for most business, organizations or firms, financial accounting and managerial accounting. I financial accounting the information can either be used to be transferred to outside parties so that it can be evaluated and measured by performance for future investors or for any other type of process that concerns groups outside and inside the organizations. the second one is management accounting that deals mostly with the owners, managers and stake holders within the firm to measure the internal performance and help the management make decisions based on the financial reporting. 

These financial statements are used by a variety of different users such as, owners and managers as mentioned above; financial statements are also critical for an investor who is going to put capital into the business, he needs to see existing financial statements so see can see what has happened to his money, how much equity or profit the firm is making, and this can help him make more educated decisions about the performance of the investment on such firm. In the other hand financial statements are crucial for communicating with the government about the operations and the monetary reports of certain firms, for example public firms must provide financial statements to the SEC, Security Exchange Commission every year as part of the regulations that governs those types of corporations, and in the other hand companies must also have comprehensive financial statements that meet the standards and provide them to local and state governments as well as the IRS. 

Other users that would be interested in seeing a company’s financial statements could be lenders, as well as suppliers and creditors, they want to evaluate what kind of record the firm has and if the statements are strong enough to trust each firm.

So whether you are going to go into a career in accounting you must know that there are many needs within firms as far as managerial accounting as well as financial accounting, you are responsible to effectively communicate the most important information that will generate processes and decisions for the continuation of the firm.

04/10/21) Exploring Business, “12.1, The Role of Accounting ” Who uses financial informacion

12.1 The Role of Accounting – Exploring Business (

Branding strategies and packaging and labeling

 In the functional areas of business such as finance, marketing, accounting, and operations, marketing is probably one of the most crucial because of the relationship between the product and the customer. A tremendous amount of research and planning needs to be executed in order to find the market and identify who is willing to show interest and eventually acquire the product.

After identifying the market, the 4 P’s of marketing are implemented or, the marketing mix; product, price, place and promotion. A product needs to be created that meets a need or want of a certain market, the the product has to be priced, after pricing the product then the process of distribution or place of where the product will be sold has to be identified and finally a critical and important part of the mix, the one that will make the difference of how to reach and capture the attention of the customers is the promotion.

Marketing encompasses the goals of the business while branding must be present from the beginning of the marketing strategy, branding is what will create an image or an impression of the company to the customers and will be tied to the companies core values. 

There are three main branding strategies, private branding, generic branding, and manufacturing branding. In private branding the company will sell a product to retailers that may sell that product under it’s own name, as opposed to generic branding, where consumers know the basic characteristics of the product yet it is not attached to a particular brand or label; and finally, manufacturer branding where companies may sell their products using a multiproduct branding approach where the name of the manufacturer is used in all products or a multi-branding approach where the manufacturer will use different brands and label to different product lines. In the branding approach there is also the factor of labeling, where the customers may be informed of everything that surrounds the product and while creating brand awareness and equity.

Packaging and labeling can be a definite factor and strategy in the way of communicating a message and creating customer loyalty. 

3. Marketing research: When executing the marketing mix, product, price, place and promotion, there are several steps and strategic planning that needs to be done in order to successfully accomplish the goal. In the case of the first P. of the marketing P, (Product) there must be a well executed and detailed as well as comprehensive marketing research.

Marketing research can answer the most basic questions about the product in order to close in and corner its target market or even identify the niche market. Questions such as who is going to buy the product? will they like the product? are they willing to pay for the product? how much? will there be enough customers to buy the product in order to make enough sales to be profitable, these are just some of the questions that need to be answered to decide even to launch the product. 

Marketers will do the informed research in order to communicate to the management and finance department how much or what will it take to launch the product and at what magnitude. There are 2 kinds of research that may identify the answers to the questions. Primary research and secondary research. In primary research or primary data, the marketers have to use somewhat of a scientific and statistical process to gather new information that addresses specific questions about the product. As opposed to Secondary Data or secondary research that can be found by already existing papers, reports, as well as internal and external information. 

Marketing research is not only important for creating a new product it is also used to improve existing products, and eventually find out more about the target market or even identify the niche market.

05/01/21) Exploring Business, “9.2, The Marketing Mix”, Conducting Marketing Research. 9.2 The Marketing Mix – Exploring Business (

4. financial planning

When talking about strategic planning and financial planning you don’t have to go as far a running a business to learn about it or become financially literate. All people should have a basic understanding of personal finances and also how their spending habits, house expenses, taxes, income, may affect their standard of living.

Individuals should have a clear understanding of their finances and how their decisions will affect their personal life and that of their family or loved ones. In order to control your personal finances there are several questions that need to be addressed such as income vs expenses, also identify the good debts from bad debts, know how much liabilities there are as well as assets, and finally how much money should I safe or what kind of saving plans do I have to implement by the time of retirement.   

As everything in life, finances and financial planning have specific life cycles, decisions need to be made at different levels of the cycles. For example as a young adult you should find the source of income that will bring in capital and assets, after you have gone through that process you have to identify the steps and strategies to keep the assets and increase your wealth, and in the final stage you must be able to retain and increase your wealth in order to keep your standard of living and at the same time increase your wealth while learning about tax planning and how taxes affect your savings and investments.

So financial planning should be a mandatory subject for all ages, it would not only benefit the individuals but it will create a more responsible economy.

05/01/21) Exploring Business, “14.1, Financial Planning”,  

14.1 Financial Planning – Exploring Business (

5. From the marketing strategy to identify the target market, we have to implement the marketing mix which includes, product, price, place, and promotion. After creating the product and doing the marketing research using both primary and secondary data, creating a price structure for your product whether it will be introductory market penetration price, or a higher price if the product has less substitutes and competition, and after developing the strategies of product distribution, place and sales channels, we come to the 4th P of the Marketing Mix. Promotion.

Promotion is a way of communication, where the customer learns about the product in different types of ways. One of the ways is by using the promotion mix such as advertising, personal selling, sales promotion and publicity. With advertising the product is promoted by paying for ads in different media outlets such as mass marketing promotional ads on television, or a more selective approach as a google or Facebook ad. Advertising has become more strenuous for marketers because of the amount of money and ads that are created on a daily basis, marketers are faced with the task of creating innovative approaches to reaching and communicating the message to its potential customers and target market. The second item of the promotion mix is personal sales, where one-on-one communications in necessary because of the cost of the item or the complexity, it requires a more specialized treatment to each of the potential clients in order to make a possible sale. A good example of personal sales can be seen in real estate transactions as well as cars and other items that would require more persuading than usual items. 

In recent years more companies are relying on one-on-one approach even for items that are considered normal and easy to sell; a good example is an apple store or a windows store, where the customer will receive a somewhat personalized attention that will increase the chance of creating the sell. and the final one of the mix is publicity and public relations where the perception of firms reputation is at stake by receiving negative or positive publicity, negative publicity has to be handled by the public relations management in order to always keep the company perceived reputation intact. 

So communicating to the customer and promoting your products its a hard task, but this task can be simplified with the proper use of the promotion mix.

05/01/21) Exploring Business, “9.5, Promoting a Product”,  

9.5 Promoting a Product – Exploring Business (

6. Operations Management on a Service Organization

    Through out the different economic eras, the United States has become more of a service provider than a manufacturing economic power as it used to be in the mid 20th century. America’s manufacturing account for only a 7% of its GDP and that number keeps decreasing, the United States has become a specialist as a service providing economy, not only internally but internationally.

Intangibility, customization and customer contact are some of the factors that differentiate a service provider from a manufactured product. The ability to meet the tailored needs of a customer, the facilitation of personalization in individual products and the customer service make the United States the leader in the service industry.

But just because you are providing a service doesn’t mean that a well executed operations management strategy is not necessary. A good example is the fast food industry where a service is provided and the main questions need to be asked such as, what service is offered? how will the service be delivered? Location? and forecast of sales and expansion.

One of the most important activities in an environment where the manager must have such close relation with the customer can be seeing in scheduling and staffing, special attention needs to be addressed, identified and executed, in order to produce the goods in a timely manner, in the way the customer will like to receive the item while maintaining the expected quality standard and customer service.

05/01/21) Exploring Business, “11.6, Operations Management for Service Providers”,  

11.6 Operations Management for Service Providers – Exploring Business (

7. Developing a product process that meets customer needs

Most Company’s ultimate goal is to make profits by selling their product, they may act a a distributor, a wholesaler or an intermediary; but what if you want to create your own product that meets a certain need and that will attract a segmentation of market and acquire a share of the industry as a whole. Then, you are going to have to develop a product and take the risk of failing, most companies that develop new products fail in the first year, due to the high production rates of new products that go into the market each day.

According to research for every 12 new products that are developed only one will have a chance to go through a few stages of its life cycle, with this numbers it is imperative that you have a successful product development strategy. 

The product development strategy or process can be summarized into seven steps, first off find and evaluate the opportunities in order to come with the right IDEA, and idea must be complemented with a CONCEPT, this concept must be analyzed and feedback, research and data must accompany the concept behind the idea, after the concept is implemented to meet the idea, then it has to be measured in PERFORMANCE  and APPEAL to the consumer, once we have identified the idea, approved the concept, measure the performance and appeal we are ready to DESIGN the product and once it’s ready and approved we can go into the manufacturing step; after manufacturing, TESTING and prototypes need to be made in order to assess the quality, integrity and responsiveness of the product, once we have gone with the testing we can create a production cap do a MARKET TEST and then you are ready to launch the product, and you’re are actually just getting started.

05/01/21) Exploring Business, “10.7, Product Development”,  

10.7 Product Development – Exploring Business (

8. Compound Interest

In the search of financial education, most people are not well educated in personal financing or financial planning, the reason is that they don’t understand the basic concepts that make their financial planning such an important part of their life, they think that financial planning its just saving, and they don’t really understand the concept of saving, they believe that saving its just putting money a side, well, in reality putting money aside without a well executed plan will decrease the value of your money.

To make a good decision about your money and what type of savings you should incur, you must understand the concept of the time value of money as well as the concept of compound interest. The money that you invest today will be more valuable than the money you invest in the future, one great example of this is the principle of compounding interest, lets say at your late 40s you decide to open a ROTH IRA, which is an individual retirement account that will generate compounded interest, which means that the interest accumulated will generate additional interest on top of the principal, this process may go on until you decide to withdraw your money until age 67 after age 59 without paying additional taxes due to the fact that this original investment comes from after taxes income.

In conclusion the earlier that you decide to invest in a retirement account the best results you will have in the long term thanks to compound interest and the time value of money.

05/01/21) Exploring Business, “14.2, Time is Money”

14.2 Time Is Money – Exploring Business (

9.  Ethics financial statements

All businesses must have a clear understanding of what is happening to the company financially, they need to know what is the current status, the past status and the future status of the management of the revenues and activities that involve the finance processes of the company. In order to maintain an efficient record and system to communicate this activities to managers and company stakeholders, both external and internal accountants use the company’s financial statements.

Some examples of the financial statements are, income statements, balance sheet, and statement of cashflows. The balance sheet conveys information about the company’s assets, liabilities as well as the stockholder’s equity. The income statement provides information of a particular date or point in time, it will show the company revenues and expenses in order to calculate the company’s net profits. And the statements of cash flows that evaluate the ability of the company to pay its obligations and debts, as well as funding the company’s investments. 

Managers and accountants are held liable for these statements and they are subject to audit from the government as well as agencies that regulate the business environment in order to protect investors and as well as stakeholders. If a manager, company or accountant falsify these documents they are incurring in illegal activity and crime that can be punished severely by the law.

05/01/21) Exploring Business, “12.2, Understanding Financial Statements”

12.2 Understanding Financial Statements – Exploring Business (

10. Company’s activities to finance operations and growth

   One of the main challenges that most companies and entrepreneurs encounter when creating a new business is the lack of cash, and ability to pay for all of the costs and expenses associated with the projects that they deem to execute. Company’s are not only looking to make profits and expand their operations, and increase their assets, but they also need financing in order to make it possible to deliver results to the consumers as well as to the company’s stake holders.

Company’s have some options to finance their growth and to increase their operations, they are equity and debt financing. There are advantages to both and also disadvantages. For example if you were lookin to finance your company by bringing in investor in exchange of equity, you will be giving those investor part of the shares of the company and control eventually in the decision making, and shared profits. In the other hand by giving equity you are avoiding the potential high interest rates of getting into debt with a financial institution, such as a bank, credit union or a private lender.

Financing is a big part of business so you need to make a well educated decision whether you are willing to share the profits in exchange of diminishing risk by equity financing, or increase the funding by incurring into debt at high interest without jeopardizing your stake in the company, it’s a tough decision so be ready to make it when the time comes.

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