...The Role of Accounting on Business and Our Society Adrian Smith Accounting 100 Prof. Eric Osei A Financial statement is a record of financial activities of a business entity. Main objective of financial statements is to provide information about financial position, performance and changes in financial position, and flows of cash in the business organization which in turn is essential in making decisions. In order for financial statements to provide the necessary information, they have to abide by the principles of understandability, relevance, reliability and comparability (Alexander et al, 2005). The first financial statement under consideration is statement of financial position. It is used to report on assets, liabilities, and capital of an entity. Assets are resources which have economic value attached to them, for example cash, debtors and inventory. Liabilities on the other side include creditors, deferred tax and accruals. Finally, capital is the owner’s equity. Statement of financial position is used to ensure that assets balance with combination of liabilities and capital. Second is the statement of comprehensive income. It provides information on revenues, expenses and profits incurred in a particular period of time. Its major purpose is to help in determining whether the business entity is operating at a profit or loss in a particular trading period. It also serves to reveal the rate of earning per share that is the amount of to be given to each stakeholder. Statement...
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...Assignment 1: The Role of Accounting on Business and Our Society Professor ACC 100 – Accounting The Role of Accounting on Business and our Society Accounting is an essential part of modern business. From the smallest start-up to the largest fortune 500 hundred company, accounting is how business growth, contraction, or direction is determined. When entering the accounting world you will be required to deal with the four financial statements, the balance sheet, the income statement, the statement of cash flows, and the owner’s equity statement. The purpose of the balance sheet is to reveal the economic/financial position of the company at a set point in time. The balance sheet follows the basic accounting equation, assets = liabilities + owner’s equity. The income statement is what an accountant uses to determine the operation of a business. You would take the revenues minus the expenses to determine the net income for the business. The statement of cash flow is useful in determining a business’s capability to pay its bills. It represents a breakdown of all transactions, and show how the company acquired its cash and what it is doing with it. Lastly there is the statement of owner’s equity. This statement shows the variations in retained earnings. While all of the financial statements are needed the most important would have to be the cash flows statement. Cash flows is most important because it provides you with the information needed to see if a company...
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...Accounting is Not Only for Big Business Michael W. Diamond Strayer University Accounting I, ACC-100-059 Rebecca Shaffer August 25, 2014 I have read and understand Strayer University’s Academic Integrity Policy. I promise to conduct myself with integrity in the submission of all academic work to the University and will not give or receive unauthorized assistance for the completion of assignments, research papers, examinations or other work. I understand that violations of the Academic Integrity Policy will lead to disciplinary action against me, up to and including suspension or expulsion from the University. I understand that all students play a role in preserving the academic integrity of the University and have an obligation to report violations of the Academic Integrity Policy committed by other students Michael W. Diamond The accounting process for any company is a daunting task and cannot be taken lightly. The types of statements and the people required to perform this task must always be taken into account. While big business seems to have mastered accounting and the process involved, small business must also take into account the process, people, and the proper controls required to run a business successfully. Each financial statement has a special purpose, and that is how they were designed. At the same time, each financial may be used to show how an organization is function, in particular, to the organization’s financial health. Technically, there are four...
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...Fundamental Accounting Principles, Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 “I felt we should go into something that we had some connection to”—Dwayne Lewis (standing; Michael Cherry sitting) 5 A Look Back Accounting for Merchandising Operations A Look at This Chapter This chapter emphasizes merchandising activities. We explain how reporting merchandising activities differs from reporting service activities. We also analyze and record merchandise purchases and sales transactions and explain the adjustments and closing process for merchandisers. A Look Ahead Chapter 6 extends our analysis of merchandising activities and focuses on the valuation of inventory. Topics include the items in inventory, costs assigned, costing methods used, and inventory estimation techniques. Chapter 4 focused on the final steps of the accounting process. We explained the importance of proper revenue and expense recognition and described the closing process. We also showed how to prepare financial statements from a work sheet. Larson−Wild−Chiappetta: Fundamental Accounting Principles, Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 Learning Objectives CAP Conceptual Analytical Procedural merchandising activities C1 Describeincome components for aand A1 Compute the acid-test ratio and explain its use to assess liquidity. identify merchandising company...
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...The Role of Accounting on Business and Our Society Stephanie R. Phillips Professor Cedano Accounting 100 February 27, 2014 When most people think of accounting, they think taxes, but accounting is so much more than that. Accountants are responsible for maintaining the financial health of our businesses. They also practice with an ethical standard that protects the public from unfair and one sided business and government practices. So next time you take your box of unsorted receipts to your tax preparer be sure to thank them for what they do the rest of the year. The four financial statements in the accounting process are an income statement; owner’s equity statement; balance sheet; and statement of cash flow (Weygandt, Kimmel, & Keiso, 2013, p. 21). Each of these statements is vital to internal and external users in order to provide relevant financial data. An income statement lists revenues and expenses that result in the net loss or income of a company during a given time frame, usually at the end of the month and the end of an accounting cycle. The owner’s equity statement accounts for any change in equity, it also records all investments and drawings made by the owner. The balance sheet shows a company’s assets, liabilities, and owner’s equity. In essence, the balance sheet shows what a company has and what a company owes. The statement of cash flow accounts for any cash in, out, or invested during the designated time period. The statement of cash flow must account...
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...Between Balance Sheet of a Merchandising Company and Service Company Financial statements reveal a lot about a company's financial health. Different types of companies have different types of financial statements. If you are interested in analyzing the balance sheets of different types of companies, you need to understand the key differences. For example, merchandising companies and service companies share the same balance sheet format. However, there are some important differences in the types of accounts listed on each. Merchandising Company Merchandising companies deal with the resale of items. Typically, merchandising companies are referred to as retailers or wholesalers. Wholesale companies sell products to retailers. Retailers, in turn, sell the product to the end consumer (the customer) at a higher price than they paid when they purchased it. Merchandising companies usually have two types of expenses -- expenses related to the products they are selling, called cost of goods sold, and expenses related to the day-to-day operations of the business. The latter would include rent, utilities, office supplies and staff salaries. Service Company Service companies also deal in products. However, their products are usually intangible. Service companies provide services for their customers. This type of company includes law firms, accounting firms, salons and spas, among others. For example, a service product is a tax return prepared by an accounting firm. A product for a salon...
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...The Role of Management Accounting in the Organization The purpose of management accounting in the organization is to support competitive decision making by collecting, processing, and communicating information that helps management plan, control, and evaluate business processes and company strategy. The interesting thing about management accounting is that it is rare to find an individual within a company with the title of “management accountant.” Often many individuals function as accountants within the organization, but these individuals typically operate as financial accountants, costs accountants, tax accountants, or internal auditors. However, the ability to develop and use good management accounting (which covers a lot more ground than the product costing done by cost accountants) is actually an important ability for many individuals, including finance professionals, operational and marketing managers, top-level executives, and information technologists. Generally, in a very large company, each division has a top accountant called the controller, and much of the management accounting that is done in these divisions comes under the leadership of the controller. On the other hand, the controller usually reports to the vice president of finance for the division who, in turn, reports to the division’s president and/or overall chief financial officer (CFO). All of these individuals are responsible for the flow of good accounting information that supports the planning...
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...Financial statements are the basic statements that summarize the financial activities of a business and are prepared by businesses to indicate the financial steadiness of the business to investors, creditors, and other external entities (McGraw-Hill Higher Education, 2009). The income statement is a representation of the revenues and expenses for a specific period of time in a business. Its purpose is to detail the revenues, expenses, and net income or loss. A net income is the result of revenues exceeding expenses and a net loss is the result of expenses exceeding revenues. The income statement does not include investment and withdrawal transactions between the owner and the business in measuring net income. The investment and withdrawal transactions of the owner are not included on the income statement when measuring net income (Weygandt, Kieso, and Kimmel, p. 23). The owner's equity statement summarizes the changes in owner's equity for the same time period that the income statement covers and indicates why the owner’s equity has increased or decreased during that time period. The data included in the owner’s equity statement is derived from the income statement. It shows the owner’s beginning equity, investments, net income or loss, and the drawings of the owner (Weygandt, Kieso, and Kimmel, p. 23). The purpose of the statement of cash flows is to provide information on the cash receipts and payments for a specific period of time. It reports the effects of a company’s operations...
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...Acct-505 Week 1 Summary Threaded Discussion #1 1. The Difference in Income Statements of a Service Company Vs. a Merchandising Company In a modern economy, sales revenue is the fuel that drives services, innovation and competition -- whether the income stems from a service company or a merchandising business. If you study an organization's income statement, you see things like revenues, cost of goods sold and administrative expenses -- all of which lead to net income or loss at the end of the reporting period. Income Statement When much of the economy struggles, you can look at corporation's income statement to figure out whether it's bowing to the overall negative environment or whether top leadership can maintain the business in profitable-company status. If the corporation is flourishing, you'll see that at the bottom of the statement of profit and loss -- an identical term for an income report, P&L or statement of income. Also known as the bottom line, net income equals total revenues minus total expenses. A net loss occurs if expenses exceed revenues. Service Company A service company is an organization that doesn't sell goods to make money, but rather relies on the analytical dexterity and innovation of its personnel to provide services that clients want and relish. Think of companies involved in investment banking, insurance, consulting, accounting and advisory and financial planning. In a service company's income statement, you typically see items, such as revenues...
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...balance sheet shows the big picture of a company’s Assets, Liabilities and any Owner’s equity that the company has at that particular time. Statement of cash flow – The purpose of the statement of cash flow is, so a business owner is aware of any financial events that could have a reverse effect on the company’s ability to meet their obligations. A balance sheet is most effective in communicating the financial health of an organization because it shows the financial transactions of a company front one point to another. Questions: 2 A public accountants duties include preparing and verifying important financial documents, analyzing budgets and planning finances as well as bookkeeping, and auditing tasks. Public accountants can give advice and provide basic financial information from clients to corporations. Certified public accountants can do the same things that public accountant due as well as overseeing budget and financial management, create and analyze budgets, and advise management on tax ramifications of business decisions. Accounting is an important part of any business. It records the way a business grows, and makes any suggestions on how to improve. Accounting has become one of the fastest growing careers because it expands even more each time a new business starts up. In today’s...
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... MERCHANDISING OPERATIONS SUBMITTED BY SOUJANYA PAPOLU Merchandising: Merchandising is any practice which contributes to the sale of products to a retail consumer. at a retail in-store level, merchandising refers to the variety of products available for sale and the display of those products in such a way that it stimulates interest and entices customers to make a purchase. Business that sell a product are called merchandiser. The operating cycle of merchandiser: it begins when the company purchases inventory from a vendor and the company sells the inventory to the customer. Finally the company collects cash from customers. Objectives of merchandising operations Account for the sale of inventory Use sales and gross profit to evaluate a company Adjust and close the accounts of a merchandising business Prepare a merchandiser’s financial statements Use gross profit percentage and inventory turnover to evaluate a business Accounting inventory Merchandising companies use several accounts that service companies do not use. The balance sheet includes an additional current asset called merchandise inventory, or simply inventory, which records the cost of merchandise held for resale. On balance sheets, the inventory account usually appears just below accounts receivable because inventory is less liquid than accounts receivable. Merchandising companies...
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...The Role of Accounting on Business and Our Society Angel Ramos Professor Darlene Green-Connor ACC 100: Accounting I March 2, 2014 The Role of Accounting on Business and Our Society There are many decisions that companies make every day in order to be in business as well as to ensure it continues to stay in business. If in retail, such examples would be to extend its inventory or cut back on an item, place certain product on sale or on clearance, or even if it would be better to relocate or sell the company. Before making any of these decisions, management and the decision makers need to know how the company is doing. There are valuable key point indicators that can help in the ultimate direction but no other report is more commonly used than the financial statement. The financial statement of a company tells the story of where the company stands in regards to their financial position, business strategy and future earnings. “As businesses have expanded internationally, so has the need for consistency and comparability in the financial reporting of events and transactions in the financial statements” (Ward, p.78). They are commonly standardized in a format that can be viewed and translated by financial and non-financial people alike. The four major components are the Income Statement, the Owner’s Equity Statement, the Balance Sheet and the Statement of Cash Flows. Financial Statements Income Statement The Income Statement is gathered within a specific time period...
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...SERVICE COMPANY A service is business sells things that are not tangible. A service company does not stock inventory, but it may need to stock tools and supplies. For example, a gardener comes to mow the lawn for a fee. He is selling a service. He may need to supply his own lawnmower, which is a cost of doing business. A maid sells the service of cleaning houses, but she may or may not need to bring her own cleaning supplies. After selling a service, there is no widget to pack up. MERCHANDISING COMPANY A merchandise business sells merchandise. Good examples of merchandising businesses include retail clothing, grocery stores and bookstores. Many people use the term "widget" to refer to any merchandise a business offers for sale when discussing business issues and dynamics. For example, a sale in which a customer receives two widgets for the price of one may refer to any type of merchandise. It could mean two pairs of shoes for the price of one or two boxes of pasta for the price of one. A merchandising company purchases inventory items to resell to customers. The company buys from several vendors and provides a central purchasing point where customers can purchase everything in one stop. The customer benefits by making one convenient stop for all her needs. Inventory represents the primary asset of a merchandising company. The typical financial transactions of a merchandising company include purchasing inventory, storing the inventory and selling the inventory to...
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...Cost of Goods XACC/290 Cost of Goods The cost of goods sold is a category of expense for merchandising organizations. It is defined as the total amount of merchandise sold during an accounting period (Kimmel, Weygandt, & Kieso, 2011). To calculate the cost of goods sold, it would depend on which type of system the merchandising company is using. If they are using a perpetual system, which means that the organization uses daily detailed entries for the cost of their inventory’s purchase and sale, they would be journalizing each selling price of merchandise (Kimmel, Weygandt, & Kieso, 2011). For example, for inventory sold, an accountant would debit Accounts Receivable or Cash and Sales Revenue is credited for that merchandise’s selling total price (Kimmel, Weygandt, & Kieso, 2011). Subsequently, the accountant would also debit the Cost of Goods Sold and credit Inventory for the cost of that merchandise sold. The second system that can be used by a merchandising company would be the periodic system. In a periodic system, the organization does not keep a daily, detailed inventory record. They instead calculate the cost of goods sold at the end of their accounting period. To determine the cost of goods sold they use the equation – beginning inventory plus the cost of goods equals the cost of goods available for sale (Kimmel, Weygandt, & Kieso, 2011). They then take this total and minus it from their ending inventory. This will give the company...
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...Accounting for a Merchandising Business In this lesson, we examine the accounting for merchandising operations -- those that sell products. The products held for sale are called inventory, or more specifically, merchandise inventory. Inventory is a current asset that will be sold to yield a profit--and the adage "buy low, sell high" is a succinct way to state a merchandiser's profit strategy. In addition to introducing a new asset, we also introduces a new cost category, and a new name for the revenue account. The cost is called Cost of Merchandise Sold (also called Cost of Goods Sold by some companies), and represents the cost of the inventory that was sold during the period. If John purchases 100 units of product for $5 each and sells 20 of them for $10 each, John earns $200 of sales revenue. The cost of the units sold is 20 * $5 = $100, and would be the Cost of Goods Sold. The difference between the revenue earned and the cost of merchandise sold is called gross profit. Here is a very basic income statement that computes the gross profit: John's Products | | Partial Income Statement | | For Month Ended 1/31/2013 | | | | Sales (20 units * $10) | $200 | Cost of Merchandise Sold (20 units * $5) | $100 | Gross Profit | $100 | Expenses | 0 | Net Income | $100 | Note that 20 units of product were sold for $10 each. The ones that were sold cost $5 each, resulting in gross profit of $100. The balance sheet for John's Products will show an Inventory account...
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