Accounting is the discipline that reflects the economic activity of a business. It is based on a set of standardised procedures known as Generally Accepted Accounting Principles (GAAP).
The purpose of accounting is to provide reliable information about a company’s statements obtained over a given period of time. Accounting enables business managers to make strategic decisions.
The four fundamental purposes of accounting are:
- Disclosure and reporting.
Documentation serves to keep everything organised: to know where the company’s cash or capital inflows and outflows come from.
On the other hand, it is compulsory to declare and report the company’s profits and net worth to the State Tax Administration Agency (AEAT) either at the end of the quarter, at the end of the accounting cycle or whenever required.
It is essential to have control of these inputs and outputs in order to be able to make decisions and determine the company’s budgets.
Finally, accounting serves to know the disposition of the company’s assets, rights and obligations and its net worth according to their degree of liquidity and enforceability.
Therefore, accounting can be internal, so that the company itself knows what its economic situation is, or external, to provide information to those who need to have it.