Accounting mechanisms

The purpose of accounting is to provide information about the company.

This information is primarily intended for the company's managers, employees and shareholders, who are most concerned by the company's activities. This information is then of interest to third parties who work with the company (suppliers, customers, financial organizations, the State through the tax authorities).

These different categories of economic agents are directly affected by variations in the company's activity. Based on this information, they can make microeconomic decisions.

The information used by third parties comes mainly from general accounting, which gives a representation of the company's assets and describes its relations with the outside world. This so-called "financial" information, intended for economic agents outside the company, is an essential tool for the company (essential but not sufficient). The company also needs internal information derived from cost accounting (also known as "management accounting"), which will enable it to make management decisions.

Although the following three articles deal only with general accounting, it should be noted that the way in which information is produced is not the same for general accounting as for cost accounting:

• general accounting, intended for external use, must use a common language for all third parties (same chart of accounts, same summary documents), otherwise there would be no real information;

• in cost accounting, which is essentially for internal use, there are also broad principles of a general nature. However, although the Conseil National de la Comptabilité (French National Accounting Board) devoted a section to cost accounting in the 1982 General Chart of Accounts, no law or regulatory text made the use of these accounting principles mandatory. Since 1999, cost accounting has not been included in the Chart of Accounts.

In practice, two companies with similar activities will have identical general accounting, but their cost accounting may differ on certain points, depending on the parameters chosen by their managers. This absence of common rules for all companies is not without consequences. The preference for one method over another can lead to distortions in cost calculations and, consequently, to companies sometimes making erroneous decisions.

Large companies publish annual brochures. In addition to summary documents, these brochures include consolidated financial statements, and often a cash flow statement or cash flow statement. In order to facilitate the reading of such brochures, in a second article devoted to financial analysis,...