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Accounting and economics are fields that have several similarities. This is because both of them are concerned with the same subject matter -- goods and services. Economics analyzes the variables related to goods and services, such as the production, consumption and trade, whereas accounting involves record-keeping. Although accounting and economics differ in their objectives and outputs, they both aid people in making sound economic and financial decisions.
The American Accounting Association defines accounting as the identification, measurement and communication of economics-related information. Communicating economic information to the key players in an economy allows them to react as they seem fit based on the information provided. Accounting generates records of transactions, values of assets and liabilities and financial statements. Keeping track of records and accounts, valuations and assumptions made are all based on widely accepted formats, such as the generally accepted accounting principles, or GAAP, which allows other companies to understand this information on the same page. Economics on the other hand, uses the information generated by accounting as a main source or basis in making changes and decisions.
Use of Statistics
In the past, accountants were the only select group of experts on statistics. Modern economics now requires economists to be experts in regard to statistics and statistical methodologies. Economists usually deal directly with data provided by accountants. By understanding how statistics was used to derive their data, economists gain a better understanding on how economic decisions actually affect market and consumer behavior.
At the heart of the modern scientific method, empiricism requires that all theories are supported by empirical data instead of mere intuition or deduction. Valid theories are those that can be subjected to evidence testing. Both economics and accounting are now subject to empiricism, meaning that every economic and accounting analysis is supported by verifiable evidence and reproducible data.
Tools for Accountability
Both economics and accounting help in setting accountability of businesses and economic entities. Most organizations are accountable to an outside party, such as the Internal Revenue Service. By being accountable to an outside party, organizations take due diligence in making their decisions. It requires them to make sure that they have concrete data to support their actions and they have a means to monitor and measure how decisions affect their own economies. Accounting and economics provide decision-makers valuable tools, such as balance sheets, statement of accounts and other analytical tools to help them identify the appropriate course of action. In case of errors or failures, records of transactions can be reviewed to determine statistics and possible measures for improvement.