The Purpose Of Accounting Essay

1362 words - 6 pages

The Purpose for AccountingAccording to BusinessWeek.com, accounting and finance play a huge role in every business. Without the proper accounting practices, a business cannot truly understand the financial position of the company and how to position it for the future. In order for any business or entity to be successful it starts with understanding and knowing the purpose and meaning of accounting. Accounting and financial statements are the means for communicating the numbers of an organization (eBook Collection, Accounting in Action, Chapter 1, p 2).Accounting is the system that provides useful financial information for a business (BusinessWeek.com, 2009). It is vital to the success of any ...view middle of the document...

These accounting reports will be analyzed and interpreted for the users of the campus's decision makers. The reports provided will depend on the decisions that each user will make depending on the internal or external users.The State of Texas audits the Systems financial statements that are prepared in accordance with generally accepted accounting principles for the State government as a whole. The State Auditor will analyze, examine and review the accuracy of the financial statements, and the responsibility of the managerial roles. The Texas A&M System also has internal auditors that will review the operations of the campus to ensure the A&M System is in compliance before the external auditors review the financials.The most common of the accounting reports is the financial statements (eBook Collection, Accounting in Action, Chapter 1, p. 21). From the data compiled in the accounting reports, four financial statements can be provided. These financial statements include the income statement, a retained earnings statement, a balance sheet or a statement of cash flows. Each of these statements provides pertinent financial data for internal and external users.The income statement or the statement of operations, earnings statement or profit and loss statement will provide users with the revenues, expenses and resulting net income or net loss for a specific period of time in addition to providing the success or profitability for a company's operations (eBook Collection, Accounting in Action, Chapter 1,p. 21). The data provided in the income statement is taken from the data that is in the retained earnings report and shows what happened during the time period. It is important to remember that the income statement will not include investment and dividend transactions between the stockholders and the business in measuring net income. When revenues exceed expenses, this results in a net income, and when the expenses exceed the revenues, this results in a net loss.The retained earnings statement will provide a report of the changes in the retained earnings for a specific period of time (eBook Collection, Accounting in Action, Chapter 1, p. 23). The data that is provided in the retained earnings statement will come from the retained earnings report and the income statement. This statement will provide the user with the reasons why retained earnings increased or decreased during the specific period of time. If a net loss is reported, it will be deducted with dividends in the retained earnings statement.The balance sheet provides users with the assets, liabilities, and stockholders' equity for the specific period of time (eBook Collection, Accounting in Action, Chapter 1, p. 23). This statement is compiled and reported by using the month end data. When reviewing the balance sheet the user is looking to ensure that the assets equal the total...

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