The importance of Accounting While many would not consider taking an accounting course unless they intended to pursue a career in accounting, the concepts that are taught in these courses help to further strengthen an individual's understanding of business and finances. Furthermore, many key concepts that are taught at an intermediate level can be translated to other aspects of running a business, whether an individual is an entrepreneur or he or she is working for someone else, or if an individual wants to invest in stocks and bonds. One of the most valuable concepts that Intermediate Accounting I taught me was the function of income statements and balance sheets (U.S. Securities and Exchange Commission, 2007). By better understanding these types of financial reporting, an individual pursuing a career in business will be able to recognize the financial health of a company and will be able to forecast future business growth and investment potential based upon past success. Additionally, a person that understands these financial reports will be able to manage money within a company better because they know how much money is available and how much money they have to work with in order to maintain a stable and profitable company. It is important for a business candidate to understand how financial reporting works because it will help them better understand how an industry or company functions instead of just knowing his or her function within an organization.
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
The main purpose of the financial statements is to provide creditors and investors with a summary of a business financial activity. All statements are prepared at certain times throughout the year. The balance sheet reports liabilities, assets, and owner equity of the company. The income statement matches incurred expenses during a period of generated revenue. The statement of retained earnings reports retained earnings from net loss and net incomes from
Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays
(Ohara, 2007) Most financial statements are made public for the benefit of stakeholders and potential investors. The bottom-line is that financial statements are the main source for analyzing how well a company is operating. The income (or profit and loss) statement is simply a report card of how much activity (revenue) was performed in the period, how profitable that activity was (gross profit/loss), and what it cost the contractor to run the business (overhead). (Murphy, 2006)
Understanding the finances of a company is important but knowing the significance of the financial statements is crucial to the operations as well. Reviewing the statement of financial position, operating statement and statement of cash flows serve as a guidance to management and executives on the day-to-day activities of an organization (Finkler et al., 2013). For example, the statement of financial position (balance sheet) shows the assets and
Users are likely interested in information that will assess the company's liquidity, solvency, risk and return, etc. Therefore, they can know more about how is the company financed and the availability of cash to pay debt from the balance sheet. They can know exactly about allocation of the use of cash for different activities from the statement of cash flows. Income statement will provide the information about the revenues and expenses of the company. They can also access information associated with dividend paid and retained earnings.
The information found in financial statements outlines the financial activities of that company, and can help managers, creditors, and investors make many important decisions.
Separately, the balance sheet reports a company’s financial position while the income statement reports a company’s fiscal year profits and losses. The balance sheet measures a company’s financial position by reporting its assets, liabilities, and owner’s (shareholder’s) equity. The income statement measures a company’s financial performance by reporting its revenues, expenses, and net income/loss. When combined, they serve two vital purposes: (1) expand the accounting equation and (2) enable analysis using ratios to determine industry position or potential material misstatements. The increase or decrease in owner’s (shareholder’s) equity on the balance sheet is a direct result of the net
MC Wells ‘A Revolution in Accounting Thought’. The Accounting Review. V.LI. No.3. July 1976. pp471-82. The article does not have an abstract – write an abstract of no more than 400 words. A short guide to writing an abstract is provided. ----Answered by Wenxin
Accountants also ensure that organized financial statements are put out so that their company’s investors and lenders can accurately evaluate how a business is doing. One of the fundamental financial statements is the balance sheet. This
Gregory the information that the financial statement provide gives management more backing when making decisions (Edmonds, Tsay & Olds, 2011). The information presented in an income statement allows companies to gauge their financial performance (Analysis of Small-Business Financial Statements Using Neural Nets, 1995). The company is able to make judgments and changes after comparing financial statements over a period of time.
Financial statements of the company are significant for the investors who would like to venture into the business operation. It gives them the insight whether the business is making profits or it is doomed to fail;
Being an effective manager for any company involves making the right decisions in terms of operations but also involves having the financial intelligence to read a financial report to determine areas of improvement for a company. Being able to decipher a company’s financial statement helps a manager understand the company’s profitability; this statement covers a few key areas which are dissected further in order to visually see where monies are being used. By understanding the income statement, balance sheet, and cash flow statements managers are able to make informed decisions regarding how the company needs to operate in the future, aligning goals in order to be successful. By reviewing revenues, expenses, and profit for a period of time, managers can see where the profit and loss is. By staying informed of the assets,
Financial statements are a very useful tool for individuals interested in the organization. Investors use the information to determine if it a wise decision to put their money into the organization. Investors need to determine if the organization has been successful and profitable and will continue to be successful and profitable. Creditors use the financial statements to determine the amount of credit that should be advanced to the organization. Employees generally do not look at the financial statements, but if a new executive was thinking of joining the organization, he or she may want to see the potential of the organization to make sure the investors are becoming a part of a successful organization. Management uses the financial statements on a monthly basis to determine which areas of the organization are profitable and which areas of the organization that needs to be discontinued or restructure to become more profitable.
have explained that the Financial statements provide asummarized view of the financial position and operations of a firm. Therefore, much can belearnt about a firm from a careful examination of its financial statements as invaluabledocuments / performance reports. The analysis of financial statements is, thus, an important aidto financial analysis.