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Importance of accounting to society
What are the types of financial statements
Accounting Role In Society
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The Role of Accounting on Business and Our Society Financial statements are formal records that represent the financial activities of any business entity. Financial records are used to calculate the performance, financial strength and liquidity of a company. There are four basic types of financial statements: 1. Statements of financial position also known as Balance sheet. Balance sheets are used to report the financial position (assets, liabilities, and stockholder’s equity) of a business at a given date. 2. Income statements also called Profit and Loss statements (statement of earnings, income, or operations). These statements are used to report the company’s net profit or loss over a specified financial period. It is arrived by deducting the company’s expenses from the company’s total income. 3. Cash Flow Statement. This statement gives a summary of movement in cash and bank balances over a given financial period – cash within the company. 4. Statement of Retained Earnings also known as Statement of Shareholder’s Equity. This type of statement is used to give details of the owner’s equity movement over a given financial period – the way the net income and distribution of dividends affected the company’s financial position. The most effective financial statement in communicating the financial health of an organization is the Statement of changes in equity. This statement sums up the profit and loss earned during the financial period and the effect, additional investments that was made or disinvestment, how profit was distributed in the business and correction of errors made in the prior period (Peterson & Fabozzi, 1999). The user of this financial period can be able to immediately learn the effects of the business operations ... ... middle of paper ... ...There is less room for errors in when using automated accounting programs. The overall advantage of automating accounting processes is efficiency. Internal control includes all activities and processes that control or prevent risks and fraud. Types of internal control measures that can be used in the service industry are: 1. Segregation of duties:-This is done by giving the roles of authorization, custody and record keeping to different people reducing the chances of error or fraud by one person. 2. Supervision and monitoring of operations: - In this control process ongoing operational activities are keenly observed and reviewed. This ensures effectiveness and efficiency of operational activities (Harrer, 2008). 3. I T controls: - IT can be used to ensure that access to data and systems is restricted to authorized personnel only by using access logs and passwords.
For instance, the profit making health organizations have the main intention of creating profits for the shareholders while the nonprofit organizations are created to further their mission (Knowing the Differences Between Nonprofit and For-Profit Accounting , 2015). Just the way these organizations differ in their purpose and foundation, they also differ in their accounting procedures. Their financial statements are presented in different ways. The financial statements prepared at the end of a year are also very different. The main reason for these differences is because the two organizations follow different accounting standards. In this part, I will lay an explicit focus on how the two organizations present the various items in the owners’ equity statement (Baker,
Balance sheet: It is often referred to as the statement of financial condition. It is a snapshot of what you have and what you owe at a given point in time. It lists all assets, liabilities and equity or net worth, with their values. The value of the assets must equal the value of the debt and the
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
... can use accounting handbook during the circumstances, where they need information. Accountants want individual choice of method, which give them a freedom to do work, more confident to do work. Different people have various way to explain, different ways to understand things. So, it is always better to perform what people specialized at doing. Accountant is same as other group of people, the way they like, and accountants do better. The entire accountants have one and same results in spite of using different individual choice of method as they all follow same equation and accounting handbook. The benefit to the accounting society is provided by accountant using particular method of accounting.
• Accounting (financial) statements for a period of several years. The statements include the balance sheet and profit and loss account, in addition, cash flow statement, capital and the annex to the financial balance.
Accounting deals with internal and external users. External users are the investors, customers, suppliers, employees, authorities, and creditors that use the information about the firm to make decisions regarding their future relationship with that firm. The information that they look at to make these decisions are the financial statements. Each of these external users may use the financial statements differently. An investor may look to see if it is worth investing in that specific company; while a supplier may look to see if they should do business with that specific company. The internal users of that firm prepare and report the financial statements that the external users use to make their decisions. The single most important thing that firms show on their financial statement is earnings. Earnings are the amount of profit that a firm or company makes during a period. The value of a company and its earnings go hand in hand. Higher earnings means increased value for the company and lower earnings mean a decreased value for the company. Also, if companies have continuous growth in earnings then that would result in higher stock prices. Investors will look at the earnings of a company to decide which particular stock that they would want to invest in. Since earnings are the most important thing that companies show on their financial statements, many companies undertake earnings management. Earnings management refers to the strategy that companies use to manipulate their earnings so that they can change their reported earnings on the financial statements (Investopedia). It is very hard for companies to continuously report consistent periodic earnings because of economic cycles and seasonal changes. Since it is hard t...
Accountants are able to make better decisions and direct business owners better on how to grow their businesses. Individuals have also benefited from the technology; one can easily access to their bank information and keep track of their expenses. Technology helped accountants eliminate papers, pens, calculations, errors and time. Today, with the help of computers, printers everything is being done faster and with very little mistakes. As technology grew, accountants have been introduced to new equipments, software, Internet based communication systems and better security systems. Most of the accountants have computers, printers, and fax machines in the offices. Everything is being calculated, stored, and organized in the computerized programs. Time is very valuable for everybody; with these inventions accountants accomplish their job responsibilities much better and faster. One does not need to travel long distances to provide finance reports; instead they can easily connect to each other via Internet and provide their results online. Beside Internet, accountants also can fax over the document to the firms they
Internal control is the most important business practice of the company, and it ensures the accuracy and reliability of financial reporting and protects the resources from any fraudulent activities. As technology grows, the number of computer based crimes and fraud increases; however, it is possible to control this computer based crimes with effective and efficient internal control systems within the company. According to Whittington & Pany (2014), the impact of IT on the auditing process is great; therefore, the auditors should consider and understand client’s internal control, data retention and processing policies in planning and timing of the audit. Some businesses might use more user-operated computers and think that it does not require
Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.
A stock statement provides information on the cost and quantity of stock related transactions. It describes the amount stock purchased at what value and when, and is a matter of accounts and finance that is supplied by the cash credit account holder to the banks providing loans at a regular interval. It gives information for the opening and closing balances of the transacted items as well.
The statement of the financial position is also known as balance sheet has shown the accounting equation, Assests = Liabilities + Equity. The statement of the financial position shows the current assets, liabilities and equity owned by a business during an accounting period.
Balance sheet-: Balance sheet is a statement at the book value of all of the assets and liabilities of a business or other organization present a particular date such as the end of the financial year. It is known as a balance sheet because it reflection accounting identity the components of the balance sheets. The balance sheet must follow the following formula:
Balance sheet is a financial statement which is widely used by accountants for businesses. Balance sheet is also known as the statement of financial position because it helps us to present company’s financial position at the end of a specified period. (fresh books, 2016)
Modern information system is now popular all over the world, it also change the accounting area. Instead of the old manual analysis, many companies making effort in developing a fitted accounting information system for themselves, as they realize the advantages that the new technology brings in - more efficient and accurate in processing, integrated data, detailed record etc. However, even though there are so many benefits, the functional system also brings challenges, making new requirements to the accountants and auditors. This paper will discuss the impact of technology to the accounting information system, as well as the necessary capability ethics that the accountants should learn in this 21th century.
Financial statements provide an overview of a business' financial condition in both short and long term. They help in understanding the past performance of the company and making future predictions about the company. It thus helps us to look beyond the profit figures.