The field of statistics is concerned with collecting, analyzing, interpreting, and presenting data.
In the field of accounting, statistics is important for the following reasons:
Reason 1: Accountants use descriptive statistics to summarize data related to revenue, expenses, and profit for companies.
Reason 2: Accountants use line charts, box plots, scatter plots, and other charts to visualize trends related to revenue and expenses for companies.
Reason 3: Accountants use time series forecasting models to predict future revenue, expenses, and profits for companies.
In the rest of this article, we elaborate on each of these reasons.
Reason 1: Using Descriptive Statistics to Summarize Data
Descriptive statistics are used to describe data.
Accountants often use descriptive statistics to summarize data related to the finances of companies.
For example, an accountant who works for a retail company may calculate the following descriptive statistics during one business quarter:
- Total revenue
- Total expenses
- Percentage change in new customers
- Percentage of products returned by customers
Using these metrics, the accountant can gain a clear understanding of the financial state of the company and also compare these metrics to previous quarters to understand how the metrics are trending over time.
Reason 2: Using Charts to Visualize Trends
Another way that statistics is used in accounting is in the form of plots and charts such as:
- Line charts
- Scatter plots
- Box Plots
Each of these charts allow accountants to visualize how different metrics are trending in a company over time.
For example, line charts are commonly used to visualize how revenue, expenses, and profit are trending year over year.
If an accountant creates a line chart to visualize yearly profits over the past five years, they will quickly see whether profits are trending up or down over time and can then share these findings with company management.
Reason 3: Using Time Series Forecasting to Predict Future Metrics
Another way that statistics is used in accounting is in the form of time series forecasting.
For example, an accountant may use historical data on revenue, expenses, and profit to forecast future values for each of these metrics for some company.
By forecasting these values, the accountant can inform the company on how much revenue, expenses, and profit they can expect in the coming months, quarters, and years.
Time series forecasting also offers accountants a way to predict a range of potential values for each of these metrics, which can inform a company on the best-case and worst-case scenarios for revenue and expenses in the future.
Related: How to Plot a Time Series in Excel
The following articles explain the importance of statistics in other fields:
The Importance of Statistics in Research
The Importance of Statistics in Healthcare
The Importance of Statistics in Business
The Importance of Statistics in Economics
The Importance of Statistics in Education