The Impact On Society On Accounting Accounting Essay


If asked about economics the most common definition will be that economics is a science related to the production and consumptions of services and goods moreover it studies the behaviour of the human being and his interaction with the society. Some writers stated that:

"Economics is the study of people in the ordinary business of life."

Alfred Marshall, Principles of economics; an introductory volume (London: Macmillan, 1890)

"Economics is the science which studies human behaviour as a relationship between given ends and scarce means which have alternative uses."

 Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: MacMillan, 1932)

"Economics is the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people."

Paul A. Samuelson, Economics (New York: McGraw-Hill, 1948)

We cannot talk about economics without mentioning Adam Smith the writer of: "An Inquiry into the Nature and Causes of the Wealth of Nations". Adam smith was the promoter of a number of ideas such as the invisible hand which he talked about in detail in his book "The Rise Of The Modern Investment Bank "the decrease of the role of the government; taxation etc.

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Below are some aspects of economics, we cite:

Behavioural Economics: seeks to find the relationship between the human psychologies, his behaviour in the society, the way he makes his choices and what affect those choices.

Environmental Economics: try to evaluate the effects of the environment on the human being.

Macroeconomics: it's the study of the entire economy it includes the study of consumption, unemployment, inflation, in other words the international economy.

Microeconomics: it's the study of the behaviour of individuals, specially the consumer behaviour.

2. Accounting:

In most of the books and dictionaries accounting is being defined as a business activity that involves preparing reports and statements related to the the assets, liabilities and finance of a company or a business. Those reports and statements are important information for the decisions makers of the entities because it gives them an idea about the performance of the company, if the company is on the right track or not and how is it financially speaking. Moreover it helps them to make better decisions for the common good of the company. Accounting is divided to branches which are:

Financial accounting: is about the classification of transactions and recording them though a set of rules and regulations. It provides historical income statements such as (cash flow statements, balance sheets).

Management Accounting: is concerned about protecting and increasing the value of the company for the stakeholders through a rational interpretation and a good use of the information recorded.

Auditing is a systematic assessment of entities that is done in order to inspect and control their records and to have an idea about their clarity and fairness. The auditors responsible for the control can be internal or external.

Taxation: it's about the preparation of tax returns in other words how much tax has to be paid by individuals and by entities.

Government Accounting: is mostly concerned with political transactions.

International Accounting: it specializes in international transactions and it mostly makes comparisons of accounting globally besides harmonizing the accounting standards in each country respectively.

3. Finance:

Finance is one of the oldest words in the dictionaries the origin of this one can go back to 1350 years this one has a wide range of definitions but we can say that finance is related to trading, exchange and management of resources such as money, goods, capitals , credits, investments etc.

The main areas of finance are:

Financial Management: is a managerial activity related to organizing and controlling the companies' monetary resources such us funds, capitals etc. Managers in each firm needs to raise the monetary resources of the company and use them effectively in order to achieve the objectives and the goals set up by the organizations. The main responsibilities of the financial management are the planning, the forecasting, and the coordination between the members, moreover take financial decisions. Financial managers take care of acquiring funds and allocating them.

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Financial markets and institutions Financial markets and institutions are businesses that focus mainly on the behaviour of the traders and their effects on the global markets, they estimate what makes the rise and fall of the interest's rates; they deal with the market policies, and facilitates the exchange of money between the investors, owners, creditors and debtors. Those institutions help businesses by providing them monetary resources as they are an important source of funds but all that by following governmental regulations. It includes the banks, the insurance companies, credits unions, funds saving institutions etc.

Investments: it's about managing the finance of the companies and managing their portfolios. Investments are mainly about making more profit; once money comes from the business activities we invest this money again in order to make profit, we expect a return on what we invested in, investments can come in different shapes, it can be by buying assets and selling them for more money, buying shares, giving loans, investing has to be done wisely.

Economics, accounting and finance are three interdependent words; the main differences that can be highlighted are:

Economics is mainly focusing on the behaviour of the consumers and organizations in other words the society in general; it studies the why and the what. What choices are being made by the consumer and why he is making those exact choices? Finance is about money, investments, taking smart decisions to make profit and raise money. Finally accounting is related to the preparation of reports, recording information and analysing them in order to make the decisions makers of the entities aware about what is going on in the entity moreover making them take better decisions to help the company go more in it success.

After the information is being recorded (accounting) decisions are being taken (finance) that information is being analyzed (economics). Overall we can say that financiers take the decisions according to the information that has been recorded by accountants and economist analyse those decisions in order to know why they were taken.

Business example:

Why the business need economics, finance and accounting, how they affect the business !!