Financial Accounting

Great Essays
Financial accounting is used to keep track of money movement within an organization. Businessmen and women must have some familiarity with the world of accounting to prevent problems or mistakes from getting out of control. In the global market of today, an organization’s inability to accurately report financial standing can cause major ripples through the global economy. An underperforming accounting department can ruin a business’ prospects for success in the future. Business leaders must have a working knowledge of the governing bodies and reports generated in accounting, understand financial statements, and recognize the three categories of accounting to ensure proper transparency of the organization’s financial stability. The world …show more content…
If these standards did not exist, then companies could publish any information they like to entice investors and creditors to contribute to the organization. These standards allow investors and creditors to compare companies within an industry to each other. The standards ensure reports published by competing business contain the same types of information. “Companies are expected to follow general accepted accounting principles when they report their financial information” (Arline, 2015). GAAP has an impact on how a company measures economic activity, information disclosed, how economic information is prepared and summarized, and the interval economic measurements are published. It is important to remember that GAAP is different for each country. A large organization may have to comply with several different sets of principles in order to conduct business in different countries. The international accounting standards were developed due to the increase in business conducted across national borders. “Since 2001, the set of standards has been known as the international financial reporting standards (IFRS) and has been …show more content…
These statements include income statements, balance sheets, statements of cash flows, and statements for retained earnings. Income statements display revenues and expenses for a given period. “Revenues are increases in wealth for the company’s owners which come from the sale of goods or services to clients. Expenses are the consumption of resources that are needed to keep the company operating and in business” (Benedicto, 2008). Income statements cover a specific period of time. They are not used for a snapshot in time. It is possible for an organization to have an income statement for a quarter (3 months) that indicates a loss while the annual income statement shows a net gain. Income statements are created to provide net income by subtracting total expenses from total revenue. Income statements will indicate a net gain for the period if revenues are greater than expenses. When expenses exceed the amount of revenue, the income statement will show a resulting net loss. “The balance sheet (statement of financial position) reports the company’s assets, liabilities and shareholders’ equities” (Benedicto, 2008). Unlike the income statement, a balance sheet indicates a specific moment in time. Assets are broken up into two groups: current and fixed. Current assets are item expected to be sold or money to be collected soon.

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