The Relationship Between Accounting and Economics

Occupations in the financial field compose an extensive section of the corporate area. This is comprehensible since the world of business is all about generating revenue. It is normal if you are confused between similar professions in the same sector.  Accounting and economics are excellent examples of such situations.

Accounting and economics are somehow relevant. They often make significant contributions to the financial and economic policies of any form of business. A lot of people often interchange the words economics as well as accounting, which shows that some individuals think that they carry the same meaning (Also see How an Accountant and a Financial Planner Differs).

Although the skills in both careers might overlap, they are quite different from each other. Therefore, it is crucial to obtain some beneficial understandings about both of them.

Accounting

The history of accounting can be traced to thousands of years ago. Accounting services in Johor Bahru offer the platform or basis for decision-making. Through accounting, you can make decisions when you record, summarise, as well as illustrating past information of the financial transaction. The process of recording in accounting is called bookkeeping or financial accounting (Also see How do You Distinguish Financial Accounting and Management Accounting?). It is essential to entrepreneurs who wish to have an official record of business transactions where they could infer vital information such as:

– Whether the company is creating profits or losing money

– The sum of money that their clients owe them or their accounts receivable 

– The sum they owe to vendors, workers, tax authorisations, banks and so on

– The amount of equity an entrepreneur has invested in the business

Such information is vital to an organisation. If a company does not do their accounts properly, they will find it tough for them to identify certain information. For instance, the company will not be able to determine the exact amount it needs to pay to a particular vendor from whom they have purchased a lot of inventories (Also see FRS 2 Inventories) since a few weeks ago. Companies require a reliable way to grab information that is related to financial transactions and that is when accounting plays its role.

You will summarise previous accounting information in a financial balance statement. Generally, financial statements give you a rough idea about various financial transactions of a firm throughout a particular time frame, such as revenue and expenditures. Also, these statements disclose the actual financial condition of the firm on a specific date. Therefore, in the end, financial statements could guide entrepreneurs when they have to make decisions in investments. For instance, they may decide whether to improve, reduce, sell or expand their investment in the business.

Economics

Economics deals with issues by people about how and what to create for them to survive. It is also about different ways people manufacture and distribute goods and services. The term ‘goods and services’ indicates anything which is created in the economy. This includes public services like roadways, healthcare, air force, fire brigade, and so on. An economy is any system which can identify what people has produced, the ways people produced it, as well as who gets to utilise it.

Similar to other social sciences, economics attempts to describe its discoveries by surveying the communication among people.

– How much is the amount of money that the tax increment will increase?

– Will more people move their businesses near to the state line so that they might be able to avoid the tax?

– Will companies record fewer sales so that they may reduce the amount of tax they need to pay?

Economics often deal with these types of questions. However, it does not always provide accurate or exact explanations.  The good news is that economics is able to show the likely results of the sales tax increment. Furthermore, economics uses practical analytical theories and tools so that they can understand the behaviours of human in the aspect of acquisition and expensing money.

While economics and accounting have some similarities, there are some critical dissimilarities between them in terms of how efficiently math or information is used. Nevertheless, both fields can give helpful insight to policymakers as well as entrepreneurs (Also see Tips on How to Sort Out Your Chaotic Finances).