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“The Money Functions”Why Accounting Is Most Important to a Firm’s Financial Success!Paper #2 AssignmentOctober 26, 2012 IntroductionWhat is all business based on? The potential for individuals and corporations to succeed through profit and revenue. Businesses have many different factors in considering how to be successful. In order for a company to have financial success there are three important components relating to the functions of money. These are marketing, accounting and finance. Of these three, I feel that the most important is accounting.When You Add, Do You Subtract?There is an old Jewish tradition that recognizes the problematic nature of money. It is that money is a means of exchange for things and that we focus on artificially created wants and needs for the physical self, while ignoring spiritual needs and community obligations that are bigger than ourselves (“Accounting,” 2011, p. 329). Jacob Needleman, author of Money and the Meaning of Life (1991), said that “ours is a society that has given material wealth first priority in our common life.” Because of this “we are barred from receiving what we truly need because of the value we give to what we merely want.” What he is trying to help his reader understand is that when we spend all of our time adding up our own wealth, we subtract from the more important things that give our lives a deeper meaning and purpose, like charity and spirituality. He’s pointing out that it takes from the meaning and joy in our lives (“Accounting,” 2011, p. 329).But if we don’t spend time adding up our own wealth, or our accounts, then the means to obtain anything will remain unachieved because we will live in a state of limbo where we can’t fulfill serving an ends to ourselves or others (“Accounting,” 2011, p. 329). If we don’t know where we stand with our accounts then we don’t know what we need to sustain us or what we have available to help others through charity.For this reason I consider accounting as the most important money function. It affects everyone; the individual, the business, and the public. The book said it best with the following sentence: “The better we understand the technical nature of accounting and its larger concerns, the more alert we become to the need for preparing our own personal balance sheets for accessing the meaning of our individual lives (“Accounting,” 2011, p. 329).”So then, as Saikaku’s character from The Tycoon of all Tenants (1688) stated: “Adding does not subtract from life: adding does what it should do – it adds to life (“Accounting,” 2011, p. 331).”A Historical PerspectiveAccounting has proved its importance to the function of business time and time again. It has also proved that adding does add to life.In The Antecedent of Double Entry Bookkeeping (1933) A.C. Littleton gives us a historical perspective of how accounting has evolved to a more accurate process of double entry bookkeeping. The accounting process started as a form of writing with symbols to keep track of something (p. 333, 10). This progressed into a form of basic arithmetic as we would understand it (20). As property, money, credit, and commerce became factors of bookkeeping the process of accounting had to change (30-70). Eventually all of these became what an individual or a business would recognize as wealth (p. 334, 10). As the potential for wealth was realized then there was a shift in power to the government and politics (40). Education and religion were important components in the progression and changes of accounting (70). Supply and demand became important factors and with this wants changed (p. 335, 10). Interests changed to meet these wants and it created a need for new knowledge (70). War became a form of commerce because it was recognized as a source of profitable activity (90). Investment and commercial banking were introduced as major functions in the economy, with individuals being responsible for keeping records of their own accounts and being subject to audits (inspections) from the banking firms (p. 336, 10-40).All of this has evolved the process of accounting and accurate bookkeeping, which is today what we know and use; double entry bookkeeping. Included in this bookkeeping is the tracking of commerce, capital, and credit which all must be accounted for accurately.A Nuts-and-Bolts Accounting Guide to Running a BusinessI’ve established how and why accounting is important for an individual and a corporation, and why the history is important to its evolution, but most importantly, it has a very specific value and function in business today. We discussed in class both the importance and the impact of knowing exactly where a business stands on inventory, cash, and debts and its consequences. This is “the technical nature of accounting” (“Accounting,” 2011, p. 329) addressed above or “casting up shop” as Daniel Defoe explained in The Compleat English Tradesman (1726, p. 358 textbook). These three things (inventory, cash, and debts) identify the accounts of stock and the profits and losses, which give the net worth of a business. If any of these are not accounted for correctly, and done so in complete calculation then it can be the downfall of a company. If a firm doesn’t know exactly where it stands at all times then it cannot know if it is thriving or not. This is all achieved through exact and accurate bookkeeping (Pacioli, 1494, p. 345 textbook). The records that are kept tell a businessman everything he needs to know. Defoe said “that (bookkeeping) must be done with great exactness. He that does not keep his books exactly…had better keep no books at all. For as books well kept make business regular, easy, and certain, so books neglected turn all into confusion, and leave the (businessman) in a wood, which he can never get out of without damage and loss (1726, p. 359 textbook).” In other words, once you lose track of where you are financially because of bad bookkeeping it is hard to make any corrections. There will be loss in time and resources when you have to go back and find the error(s). The longer you go without verifying your accounting and bookkeeping, the harder it becomes to locate the errors, and more loss will occur as more time and resources are used to find and make the necessary corrections. None the less, corrections have to be made. You have to find the errors to make sure that the books balance.Keeping exact books doesn’t always mean that a business will be successful. It does, however, keep a firm in full knowledge of what they are doing, and how they really stand (Defoe, p.362 textbook). This gives a financially troubled company an upper hand because they can then reflect on their circumstances and make a decision for their future. ConclusionMoney is important to us all. It is the sustaining factor in all of our lives. Without it we cannot survive. Whether we are considering the individual or the business, we must have morals and values where money is concerned. Accounting allows us to explore this.The history helps us to understand its true function. It paints a picture of why accounting is needed.Understanding the process of accounting, and why all inventory, cash, and debts must be accounted for correctly helps us to be successful. Whether business is successful or not, proper accounting gives us a sense of power and pride.It is clear to me that accounting and its principles have a very important place that has been earned in the function of business.Works CitedDefoe, D. (1726) The Compleat English Tradesman. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 205-212). Boston, MA: Pearson Custom Printing.Littleton, A.C. (1933) Excerpt from Accounting Evolution to 1900. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 205-212). Boston, MA: Pearson Custom Printing.Needleman, J. (1991) Money and the Meaning of Life. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 205-212). Boston, MA: Pearson Custom Printing.Pacioli, L. (1494) Excerpt from Ancient Double Entry Bookkeeping. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 205-212). Boston, MA: Pearson Custom Printing.Saikaku, I. (1688) The Eternal Storehouse of Japan. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 205-212). Boston, MA: Pearson Custom Printing.Accounting. In Boardman, C.M., Sandomir, A.N., & H Sondak (Eds.), Foundations of Business Thought (2011, pp. 329-331). Boston, MA: Pearson Custom Printing. ................
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