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ACC 280 Understanding Accounting and Financial Statements

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Accounting

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Purpose of Accounting
Running head: Accounting
Understanding Accounting and Financial Statements
ACC 280
Understanding Accounting and Financial Statements
Businesses can be impressive institutions. There are many factors that
are combined to make a successful business. These businesses usually
have strict code of conducts and ethics that guide the company in its
daily practices. Some areas of the business receive more attention than
others. One department that receives constant attention is the
accounting or finance department. This is a department that is
responsible for many aspects of the business. This department gives
managers and employees the monetary status of the company enabling
them to make important decisions to guide the company. It is important
that individuals are able to understand basics of accounting and the four
basic financial statements.
Purpose of Accounting
Accounting serves many important functions in a business. First an
individual needs to have a basic understand of accounting. Accounting
consists of three very basic activities which are identifies, records, and
communicates financial information within a given period. The first
activity is to identify events relevant to the company during that time
period. Accounting also records events in order to provide history of its
financial activities. This activity of records must be systematic and in
chronologically. The last major activity that accounting demonstrates is
the ability to communicate information of accounting reports. With
accounting giving this vital information to an individual it is important that
the individual is able to analyze and interpret the information that is
given. To be able to interpret the information the individual will have to be
capable to explain the uses, meaning, and limitations of the data. When
analyzing the information the individual uses ratios, percentages,
graphs, and charts. Another important part of accounting is bookkeeping

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which usually only involves recording of economic events (Weygandt,
Kimmel, & Kieso, 2008).
The accounting process uses four basic financial statements of income
statement, retained earnings statement, balance sheet reports, and
statement of cash flows. The income statement shows the revenues and
expenses which result in either a net profit or net loss of the company
during a specific timeframe. The income statement lists revenues then
expenses on the worksheet. When analyzing the income statement it is
important to remember that it does not include investment and dividend
transactions. Retained earnings statement summarizes changes in
retained earnings for a specific period of time. The retained earnings
statement is able to show reasons why retained earnings may have
increased or decreased. The balance sheet reports the assets, liabilities,
and stockholders’ equity of a company a specific date. Total assets must
always equal total liabilities and stockholders’ equity. The balance sheet
also gives a quick glance at a company’s financial condition at given
date and time. The statement of cash flows summaries information
concerning the cash inflows or receipts and outflows or payments during
a certain timeframe. This statement is helpful because it shows the cash
effects of a company’s operations, investing transactions, financing
transactions, net increase or decrease, and the cash amount at the end
of the period being analyzed (Weygandt, Kimmel, & Kieso, 2008).
Statement Relation and Usefulness
All of these basic statements are useful tools that can be used in every
day management and decision making within a company. We this for
basic statements and individual can obtain a accurate description of the
financial stability of a company. It most importantly is useful because it
allows investors, creditors, and others what is happening with the
company’s most liquid asset. All businesses desire to succeed and most
of them want to make a profit. These reports allow them that easy
access to assets and expenses. It can also help managers decide
staffing plans, purchases, and sells (Weygandt, Kimmel, & Kieso, 2008).
Conclusion
Businesses are impressive institutions that require many different tools
to run efficiently. These tools come in the form of departments and the
people that make the departments. One of the most crucial departments
is accounting or financial. This department has impressive tools that can

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prepare managers and others with information to operate the business.
If the individual uses the income statement, retained earnings statement,
balance sheet reports, and the statement of cash flows they will obtain a
snapshot of the financial status of the company. These reports help
make sound decisions possible for the business.
References

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