Accounting Increases A Student's Preparedness To Understand

Accounting increases a student's preparedness to understand complex bu

Accounting increases a student's preparedness to understand complex business concepts and the rationale managers use to make financing decisions. It is a business discipline that allows companies to analyze, record, and retrieve critical financial information that can be used to determine a company's financial status, and provide reports and insights that are needed to make sound financial decisions. Use the Internet or the Strayer Online database to research relevant accounting information to respond to the questions in the assignment. Write a two to three (2-3) page paper in which you: Describe the purpose of each financial statement. Determine which one (1) is the most effective in communicating the financial health of an organization. Defend your position. Compare the major functions of an accountant to that of a certified public accountant. Make an argument for and against the importance of accounting and accountants in our society from a U.S. or global perspective. Imagine that you have decided to create your own business venture. Determine whether the company will be a service or merchandising company. Describe the differences between the charts of accounts for both companies. Based on the company that you selected in 3, make an argument for automating the accounting process, and implement at least three (3) types of internal controls to prevent or detect theft or fraud. Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

Paper For Above instruction

Introduction

Accounting is the backbone of any business, providing critical insights that aid in decision-making, strategic planning, and assessing financial health. Its importance extends beyond mere record-keeping, encompassing a broad understanding of financial statements, roles of accounting professionals, and the technological innovations that enhance financial management. This paper explores the purpose of financial statements, compares accounting functions, and discusses the implications of automation and internal controls within a business context.

The Purpose of Financial Statements

Financial statements are formal records that depict a company's financial position and performance over a specific period. The primary financial statements include the Balance Sheet, Income Statement, and Cash Flow Statement. The Balance Sheet provides a snapshot of an organization’s assets, liabilities, and equity at a particular point in time, enabling stakeholders to assess liquidity and financial stability (Gibson, 2020). The Income Statement, also known as the Profit and Loss Statement, reports revenues, expenses, and profit or loss over a period, illustrating operational efficiency and profitability (Kieso, Weygandt, & Warfield, 2020). The Cash Flow Statement tracks cash inflows and outflows from operating, investing, and financing activities, offering insights into liquidity and cash management (Libby, Libby, & Short, 2022).

Most Effective Financial Statement

Among these, the Income Statement is arguably the most effective in communicating an organization’s financial health because it reveals profitability, a fundamental indicator of business viability. While the Balance Sheet provides valuable information about financial stability and liquidity, profitability directly impacts a company's ability to sustain operations and grow (Wild, Subramanyam, & Halsey, 2019). Thus, investors and creditors often prioritize income statements for assessing performance and future prospects.

Roles of Accountants versus Certified Public Accountants

General accountants perform routine recording, classification, and summarization of financial data, ensuring accuracy and compliance with accounting standards. They manage daily bookkeeping, prepare financial statements, and assist in tax filings. Certified Public Accountants (CPAs), however, hold additional credentials that authorize them to perform audits, attestations, and more complex advisory services. CPAs are often called upon for verifying financial statements’ accuracy, providing expert opinions, and ensuring regulatory compliance (Schwartz, 2018). Their advanced expertise lends higher credibility and trustworthiness to financial information, which is essential for external stakeholders.

Accounting in Society: A U.S. and Global Perspective

The importance of accounting and accountants in society is profound, underpinning economic stability and trust. In the U.S., accounting practices are governed by standards issued by the Financial Accounting Standards Board (FASB), and accountants contribute to transparency, fraud prevention, and informed decision-making (Baldwin, 2021). Globally, accounting serves as a universal language that facilitates international trade and investment. However, challenges such as differing regulations, ethical lapses, and discrepancies in financial reporting highlight the need for robust standards and ethical practices (Gray & Manson, 2018). Without accounting, the integrity of markets would be compromised, emphasizing the sector’s critical societal role.

Business Venture Decision: Service versus Merchandising Company

Suppose I decide to launch a digital marketing agency as my business venture. This would classify as a service company, providing marketing, advertising, and consulting services rather than physical products. The charts of accounts for a service company typically focus on income and expense accounts related to service delivery, with fewer inventory or cost of goods sold accounts compared to a merchandising entity, which manages inventory and sales for physical products (Horngren, Datar, & Rajan, 2020).

Differences in Charts of Accounts

For a service company, the chart of accounts emphasizes revenue accounts such as “Service Revenue,” and expense accounts like “Advertising Expense,” “Salaries Expense,” and “Office Supplies.” There is usually no inventory account unless the service includes tangible deliverables. Conversely, a merchandising company's chart includes inventory, “Cost of Goods Sold,” and sales-related accounts, reflecting inventory management processes (Wild et al., 2019).

Automating the Accounting Process and Internal Controls

Given the dynamic nature of a digital marketing agency, automation of accounting processes is advantageous. It enhances accuracy, efficiency, and real-time financial insights, crucial for rapid decision-making. Implementing enterprise resource planning (ERP) systems can streamline operations and reduce manual errors (Gattiker & Goodhue, 2021).

Internal controls are vital for preventing theft and fraud. Three recommended controls include segregating duties to ensure no single individual has control over all aspects of a transaction; implementing periodic internal audits to detect irregularities; and using secure, access-controlled accounting software to restrict unauthorized data entry or modifications (COSO, 2013). Additionally, establishing clear policies for expense approval and regular reconciliation further bolsters internal safeguards.

Conclusion

Accounting serves as a foundational element of business, supporting transparency, decision-making, and societal trust. Recognizing the roles of various accounting professionals, understanding financial statements, and leveraging technology and controls are vital for sustainable business success. As the landscape evolves, the strategic application of accounting principles remains essential for both entrepreneurial pursuits and broader economic stability.

References

• Baldwin, R. (2021). Financial Accounting Standards and Business Transparency. Journal of Accounting and Economics, 72(2), 123-135.
• COSO. (2013). Internal Control—Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
• Gibson, C. H. (2020). Financial Reporting & Analysis (14th ed.). Cengage Learning.
• Gray, S. J., & Manson, S. (2018). The Role of Ethics in International Accounting. Accounting, Auditing & Accountability Journal, 31(2), 563-589.
• Gattiker, T., & Goodhue, D. L. (2021). ERP Systems: An Organizational Perspective. Journal of Information Technology, 36(1), 47-68.
• Horngren, C. T., Datar, S. M., & Rajan, M. V. (2020). Cost Accounting: A Managerial Emphasis (16th ed.). Pearson.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (16th ed.). Wiley.
• Libby, R., Libby, P. A., & Short, D. G. (2022). Financial Accounting (10th ed.). McGraw-Hill Education.
• Schwartz, R. (2018). The Role and Credentialing of Certified Public Accountants. Journal of Accountancy, 226(5), 56-61.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2019). Financial Statement Analysis (12th ed.). McGraw-Hill Education.