Accounting
Enjoli Hill
280
8/16/11
James Wood

Accounting The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees. What is accounting and why is it so important? Accounting is the financial information system that provides need to know information about your company. “Essential characteristics of accounting are identification, measurement, and communication of financial information about economic entities to interested parties” (Weygandt, p. 4, Para. 1). When you are in a business you have to identify events relevant to your company’s finances. Once you identify the facts you have to record these events. When recording you is providing a history of financial activities in a chronological diary to help you better understand your company’s revenues and expenses. After you summarize all collected information, you communicate to interested users by meaning of accounting reports. Accounting reports are referred to financial statements. Financial statements provide the overview of the financial condition of the business. Companies prepare four financial statements from the summarized accounting data. To understand the true financial state of a business one must understand the purpose of the four financial statements and what kind of information each statement presents. These statements are the income statement, owner’s equity statement, balance sheet and statement of cash flows. The income statement presents the revenues and expenses and results of net income or net loss for a period of time. An owner’s equity statement summarizes the changes in owner’s equity at a certain date. A balance sheet reports the assets, liabilities, and