Accounting decision making

Accounting decision making

Accounting decision making

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Accounting decision making In this chapter, you will have the chance to ask yourself, what actually is accounting? Is accounting a game, where we can just manipulate and move around accounting numbers to get the results we want? Or is accounting perhaps about using a computer software package to manage a firm’s ‘accounts’, whatever that might mean? You can google ‘Accounting software packages in Australia and NZ’ to find a long list of packages people use, particularly in small to medium size businesses, such as MYOB (‘Mind Your Own Business’), Xero, or Quicken/Quickbooks. Is this what accounting is about? Recording a whole lot of transactions of a business, like a memory aid? At least such a task has been made easier with the use of computers.

We will look at why and how aspects of the economic and business realities of firms are captured and recorded into a firm’s accounts. Now a firm’s accounts are not themselves the economic and business realities of firms. Accounting is also not like a corporate camera taking precise photos of what is going on. Rather, each firm experiences its own economic and business realities quite independently of what gets recorded in its accounts. But some aspects, or elements, of what is going on in a firm are recorded in its accounts in certain ways. We will look at why these particular realities get captured and recorded in the way they do. Understanding this will help us as we seek to learn how to use a firm’s accounts to engage with and connect to a firm’s economic and business realities; that is, to know what is really going on in a business.

Accounting is supposed to help us connect to reality, to what is really actually going on in a firm; and in this chapter we can start to ask ourselves whether or not we think accounting can really help us to do this. We will look at some of the key ideas and concepts underlying the complex way we have developed of accounting for business activities. And we will see that underlying accounting is a particular way of viewing business; a way of imagining business. Accounting is, at the end of the day, a model. Not a fashion model, or a model plane, but a business model. It is a model, or simplification, of each firm’s economic and business realities. It is an abstraction of all the complex activities of a firm. If we are to consider whether we think accounting can help or hinder us to better connect to what is really going on in a firm, we first need to understand the business model underlying accounting; and to ask ourselves whether or not we think it is a powerful or useful way of viewing a business. Before we do this, let us first look at what business reality is.

 

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