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ACC 205 Financial Statements and There Importance in Outside Interests

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Financial Statements and There Importance in Outside
Interests
Financial Statements and There Importance in Outside Interests
ACC 205
Financial statements are used in accounting to give an accurate
representation of the financial health of a given business or entity. These
statements and their underlying importance of accuracy cannot be
overlooked. It is of the utmost importance for a business to present
accurate financial statements not only to meet reporting requirements
internally, but also to satisfying outside reporting expectations. This is
particularly crucial when it comes to outside business interests because
potential investors and potential lenders need to access financial
statements in order for them to make decisions based on the financial
status and overall performance of the business. Accurate financial
statements are also important for regulatory authorities as well as
government bodies (Homgren, C. Harrison, W. & Oliver, M. 2012). The
laws created around financial statements make it clear that companies
should make submissions of all their financial statements on an annual
basis. Tax authorities also must have access to financial statements in
order to looks at profits and if the correct amount of taxes are being paid.
When lenders or investors are evaluating a business they use the
information from the financial statements to look at the profitability or
lack thereof. By looking at this they are able make decisions based
things such as the likely hood of repayment of a loan and debit
obligation or potential investment into the company. “Business
transactions or events can pose ethical challenges. Accountants must be
honest in their work. Only with complete and accurate information can
help people make wise decisions” (Homgren, C. Harrison, W. & Oliver,
M. 2012).
The financial statements are prepared in order of income statement,
statement of owner's equity, and balance sheet. The income statement is
important for accountants to prepare accurate and complete financial
statements because other people rely on the data to make decisions

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(Homgren, C. Harrison, W. & Oliver, M. 2012).The income statement
sometimes called the statement of earnings or statement of operations
gives a representation of a business entity's revenues and expenses for
a period of time, such as a month, quarter, or year. What this does is
create a view of operations during the period which is vital information
because it shows if the company made a profit or a loss.
An example from our text is our week one discussion about Wai Lee the
owner of Xiaping Trading Company. In this example Wai lee is proposing
altering the financial statements in order to make the company appear to
be doing better than it truly is. This allows the company to appear
healthier and will assist the company to secure a new loan or more
financing for the business. Lee’s motivation is to keep the company
running and looking healthy, but he is not giving an accurate report. The
report should show as loss for the third year in a row and he suggest
doing two things to prevent that from happening, one is to temporally
transfer land in to the company’s name to beef up the books and the
other is to shave $500,000 from expenses. In order to accomplish this
Wai Lee needs his Company Chief Accountant Brent Ray to remove the
$500,000 from expenses. It is unethical for Wai Lee to ask his
accountant to remove the $500,000 from the expenses as it violates
codes of conduct and it is extremely unethical to present falsified
information to a creditor in order to secure a loan. The $500,000
represents company debt and by reducing the liability of the company it
will give the appearance that the company has less expenses and thus
making it appear stronger. Business transactions or events can pose
ethical challenges.
Another way to alter the financial statements would be by not recording
the depreciation expense at the end of the year. Failing to record
depreciation would overstate net income and paint a more favorable
picture of the company's financial position (Homgren, C. Harrison, W. &
Oliver, M. 2012). Dishonesty is a huge factor in the fraud associated with
financial statements and internal controls must be set up within a
company to prevent altered dishonest financial statements. These types
of controls could include policies a business implements for purposes of
fraud prevention. By safeguarding the assets of the business it will in
turn create accurate financial statements (Temte, 2004).
There are two main users of the financial statements a business
generates. The first group of users includes the internal users and the

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Financial Statements and There Importance in Outside Interests Financial Statements and There Importance in Outside Interests ACC 205 Financial statements are used in accounting to give an accurate representation of the financial health of a given business or entity. These statements and their underlying importance of accuracy cannot be overlooked. It is of the utmost importance for a business to present accurate financial statements not only to meet reporting requirements internally, but also to satisfying outside reporting expectations. This is particularly crucial when it comes to outside business interests because potential investors and potential lenders need to access financial statements in order for them to make decisions based on the financial status and overall performance of the business. Accurate financial statements are also important for regulatory authorities as well as government bodies (Homgren, C. Harrison, W. & Oliver, M. 2012). The laws created around financial statements make it clear that companies should make submissions of all their financial statements on an annual basis. Tax authorities also must have access to financial statements in order to looks at p ...
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