The Role of Accounting on Business and Our Society

The Role of Accounting on Business and Our Society

Question One:

Financial statements are formal records of a company’s financial activities. The records are written reports that measure the performance, liquidity, and financial strength of an entity. They reflect or represent the business transactions’ and events’ financial effects on the company. There are four main types of financial statements (Weygandt, Kimmel, & Kieso, 2009). The first is the statement of financial position, also called the balance sheet. This statement shows an entity’s financial position at a certain period. Its main elements are assets, equity, and liabilities.  Assets are things a business controls or owns while liabilities are things that the company owes to people and institutions. Equity is what the company owes to the owners. The income statement is also referred to as the profit and loss account and reports the entity’s financial performance in relation to the net profit and loss in a certain date. It is comprised of the income, expense, and depreciation (Weygandt, Kimmel, & Kieso, 2009). Cash Flow statement, on the other hand, presents the movement in bank and cash balances in a specified period. It is classified into operating activities, investing activities, and financing activities. The fourth statement is the statement of changes in equity (statement of retained earnings) presents the movement of equity of owners in a certain period. Its components are the income statement, issued share capital, dividend payments, recognized losses or gains, and effects on changes in accounting policy (Weygandt, Kimmel, & Kieso, 2009). In my opinion, the most effective in reporting the financial health of the business is the statement of financial position as it measures the performance, liquidity, and financial strength of an entity.

Question Two:

Accountants have roles similar to certified public accountants. One of the major roles played by an accountant is financial data management. This involves the gathering and maintenance of financial information as it concerns an organization. It is the duty of an accountant to ensure that financial records are maintained in conformity to legal and accepted policies and procedures (Larson, Kalagnanam, & Jensen, 2005). Accountants are also involved in giving analysis and advice. They use financial data to help in making critical company decisions. Accountants are involved in the preparation of financial reports, which are used by important company stakeholders such as customers, suppliers, or even investors in making decisions. The reports are made using accounting systems and computer programs. Another role of accountants and which is very important even for the legal institutions is to ensure compliance. These include adhering to legal rules and procedures, meeting deadlines, and tax and audit compliance (Larson, Kalagnanam, & Jensen, 2005). Another role is to ensure external business affiliations as they must work with people from the management, internal auditing, public, and government accounting industries.

Question Three:

If I would create my own business, it would be in the service industry. Service business deals with the sale of intangible goods while merchandise business sells tangible products. There are differences in the charts of accounts of both businesses. The differences are in the format of financial statements and the recognition of revenue (Larson, Kalagnanam, & Jensen, 2005). Merchandising businesses generally collect their payments from clients when client takes the goods from the store. On the other hand, service businesses recognize revenue when the entity carries out the service for the client. In many cases, the entity bills the client on a future or later date to request payment. Merchandise businesses recognize revenue on the time of sale. The formats of the income statements differ between the two types of companies. For the service industry, operating expenses are deducted from the revenues in order to get the net income. For merchandise companies, the cost of merchandising is deducted from the revenue to get the gross profit (Larson, Kalagnanam, & Jensen, 2005). After this is done, operating expenses are then deducted to get the net income.

Question Four:

Automating the accounting process in my business is important. It refers to an approach of maintaining current accounting records using accounting software. It allows for easy accounting process in conformity with the accounting standards and procedures in operation. Automated accounting systems saves a lot of time when compared to traditional methods.  There are a number of internal controls that can be used to prevent or detect theft or fraud (Weygandt, Kimmel, & Kieso, 2009). One of the internal controls that will be used in the business is to use a system of checks and balances in order to ensure that no one has authority or control over all components of financial transactions. Another internal control is to limit the use of agency credit cards and confirm all accounts and credit cards’ charges, which is meant to ensure that they are all business-related (Weygandt, Kimmel, & Kieso, 2009). The preparation of fiscal procedures and policies in writing and obtaining the approval of the Board of directors is an important control in preventing theft or fraud.

 

 

 

References

Larson, K. D., Kalagnanam, S. S., & Jensen, T. (2005). Fundamental accounting principles. Toronto: McGraw-Hill Ryerson.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2009). Accounting principles. New York: Wiley.

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