The Importance Of Trend Analysis In Accounting

Introduction

A business cannot be managed without accurate, adequate and up to-date financial information. An accounting department is vital for any business entity in order to provide adequate and reliable information that is much needed to serve various interested parties both inside and outside the organization. Accountants produce financial information that is essential for adequate decision making process (Smith, Keith, & Stephens, 1989). Management relies heavily on the data and financial reports produced by a firm 's accountants in making vital decisions regarding many important aspects such as products and services pricing, inventory costing system, payroll, income distribution and future investment (Smith, Keith, & Stephens, 1989).

The work accountants do is sometimes confused with bookkeeping. Bookkeeping is the clerical task of recording a business 's economic activities. Bookkeeping is the core process of collecting financial information, which accountants may perform by themselves; however, accountants ' work goes further behind merely bookkeeping. The scope of

Trend analysis is a process that involves making comparisons between financial data of the current year and these of previous years. Thus, trend analysis is very useful in evaluating a business 's current performance in comparison to its performance in previous years (Mescon, Bovee, & Thill, 2002). Accountants also use Excel in conduct ratio analysis and to calculate financial ratios, which include profitability ratios, liquidity ratios, activity ratios and leverage ratios. Financial ratios provide management with extremely valuable information about company 's sales earning, capital, assets, debt, and equity, which surely allows management to make informed and sound decisions (Mescon, Bovee, & Thill,