The Role Of Accounting In Business And Society

The Role Of Accounting On Business And Our Societydue We

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

Accounting plays a pivotal role in the operational and strategic functions of businesses and society at large. Central to its significance are the financial statements that serve as vital tools for understanding and communicating a company's financial health. Each financial statement—namely the balance sheet, income statement, and cash flow statement—provides unique insights into different aspects of a business’s financial performance and position.

The balance sheet presents a snapshot of a company's assets, liabilities, and shareholders’ equity at a specific point in time. It reveals what the company owns, owes, and the residual interest of the owners, offering crucial information for assessing financial stability and liquidity. The income statement, also known as the profit and loss statement, details revenues, expenses, and profits over a period. It measures operational performance and profitability, which are essential for understanding how well a business is performing financially. The cash flow statement tracks the inflows and outflows of cash within an organization, highlighting the company's liquidity and cash management strategies.

Among these, the cash flow statement can often be considered the most effective in communicating the immediate financial health of an organization. This is because cash flow liquidity directly impacts operational sustainability and ability to meet short-term obligations. Even if a company reports profits on the income statement, poor cash flow can signal potential liquidity issues. Therefore, the cash flow statement provides critical insights into the firm’s liquidity position, making it highly effective for stakeholders evaluating short-term financial health.

The roles of accountants and certified public accountants (CPAs) are related but distinct. An accountant typically performs routine recording, classification, and analysis of financial data, maintaining accurate financial records and preparing financial statements. In contrast, a CPA is a licensed professional who has passed rigorous exams and met experience requirements, offering services such as auditing, taxation, consulting, and assurance services. CPAs are also authorized to certify financial statements, provide attestations, and offer expert financial advice, which adds a layer of credibility and trustworthiness to financial disclosures.

The importance of accounting and accountants in society is profound. From a societal perspective, accounting facilitates transparency, accountability, and informed decision-making in business. It supports the efficient allocation of resources, whether in the private sector or government. Critics might argue that accounting can be manipulated to obscure the truth, leading to fraud or misrepresentation, which erodes public trust. Conversely, proponents emphasize that accounting provides a standardized framework that enhances transparency, helps prevent fraud through audits, and sustains the integrity of financial markets. Globally, the role of accounting underpins economic development, investor confidence, and regulatory compliance, making it indispensable for economic stability and growth.

Suppose I am to create my own business venture. For this exercise, I choose to establish a service-oriented company focused on digital marketing consultancy. The chart of accounts for a service company generally includes accounts for revenues, various expense categories (such as advertising, salaries, office supplies), and assets like equipment and receivables. In contrast, a merchandising company’s chart of accounts contains inventory accounts, purchases, cost of goods sold, and related accounts which are not typical in service firms.

Automation of the accounting process in the proposed business is advantageous. It enhances accuracy, efficiency, and real-time financial tracking, enabling timely decision-making. Implementing internal controls is essential for safeguarding assets and preventing fraud. Three vital controls include segregation of duties—ensuring that no single individual has control over all aspects of a financial transaction; regular reconciliations—periodic comparison of accounting records with bank statements or physical assets; and authorization controls—requiring management approval for significant transactions. These controls mitigigate risks of theft and fraud, protect company resources, and ensure integrity in financial reporting.

In conclusion, accounting is fundamental for business success and societal trust. Financial statements provide critical insights, with the cash flow statement often being the most indicative of immediate financial health. The roles of accountants and CPAs differ but are both vital in maintaining transparency and credibility in financial reporting. Whether in the United States or globally, accounting sustains economic growth, ensures compliance, and fosters investor confidence. By integrating automation and robust internal controls, businesses can better safeguard their resources and enhance operational efficiency, reinforcing the central role of accounting in our society.

References

• Gibson, C. H. (2019). Financial reporting & analysis (14th ed.). Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (16th ed.). Wiley.
• Accounting Tools. (2023). Financial Statements. Retrieved from https://www.accountingtools.com/articles/financial-statements.html
• American Institute of CPAs. (2022). The role of CPAs in financial reporting. Journal of Accountancy.
• Haron, H., & Ahmad, N. H. (2021). The importance of accounting in economic development. International Journal of Business and Society, 22(3), 112-128.
• International Federation of Accountants. (2020). Global mobility of accountants: Standards and implications. IFAC Reports.
• Steinbart, P. J., Palanitkar, S., & Kieso, D. E. (2020). Accounting information systems (14th ed.). Pearson.
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• World Bank. (2022). The role of accounting in global economic development. World Bank Reports.