The Main Purpose Of Accounting Is To Provide Information That Is Useful In Making Economic Decisions
Yes, it is true as "The Ultimate Goal Of Accounting Is To Provide
Information That Is Useful For Economic Decision-Making".
Accounting provides useful information to both Internal Users And External Users of Accounting Information for making rational and economic decision purposes. For example, if the net profit of $2000 from previous period increased to $7000 due to rapid increase in sales, which is very good, then it shows that the financial performance has very much improved and the investors (external users) are more willing to investment in the company’s business. This financial information helps them in their investment decisions to invest in the company’s business as it is an economical and beneficial decision for them due to higher profit or huge financial improvement to meet daily expenses of the business.
The financial information of unit per cost is also helpful for the management to check which unit of the product manufactured is costly and which is the most economical i.e., trying to find the maximum output at minimum cost in order to control and improve efficiency. It may be possible that workers are performing well in the production process or the raw material is of good quality which increased the cost per unit. If it is due to poor performance of workers of workers, then it should be addressed accordingly i.e., may be workers are untrained and if it due to good quality of raw material then this is a valid reason of increase in per unit cost.
Employees are internal users of accounting information also rely on Financial Statements because they want to know about their salaries, bonuses, job opportunities to make economical decisions i.e., whether it is better to carry on this position or more to another position one because of better benefits, better salary packages, etc. There may be possibilities that the better the financial performance of the company will be, the more willing the employees will show to work on specific project and they will show full commitment to work on as they will surely get high salary package if they achieve the set targets.
Creditors or lenders are interested in the accounting information because they want to pay back of their loan in time from the company. They make informed and economic decisions from financial information, which include Income Statement, Balance Sheet, Statement of Cash Flows, Statement of Owners Equity, Ratio Analysis, etc., such as whether to lend that company or not, is it good to give credit to thar company? and whether the company is able to repay the loan in the specific time or not. They need the trust of the company to build strong lender-borrow relationship. For this, if they see that whether the Profitability and Liquidity of the company is good or not. Also, they see whether the company will probably generate future cash flows or not. After seeing all these useful accounting information, they take economical decisions.
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