assignment Type:Individual Project Deliverable Length:3 pages
Points Possible:125 Due Date:2/16/2013 11:59:59 PM CT
You have been asked to speak at a career fair for high school students in your home town.
Specifically, you are making a presentation about your role as an accountant.
· Describe for the students the primary objectives of accounting.
· Explain the basic terminology of the accounting process or financial reporting.
· Explain how accounting has affected your personal life emphasizing professional ethics.
· Explain the role that technology has played in small business accounting.
Please include APA in-text citations and references.
Background on Course Research Requirements: In the business world, it is important to use research to strengthen points made in presentations and projects. Learning to use the search functions in databases for research is a crucial critical thinking skill that complements other research techniques.
There are two main types of databases. The most popular databases are ABI Inform Global, Academic Search Premier, and Business Source Premier. You must stay away from inferior Web sites with anonymous writers; articles found on consultant Web sites; and materials on sites like QuickMBA.com, MarketingProfs.com, etc. Dictionaries and encyclopedias most often repeat the information from textbooks. Acceptable internet resources include, among others, government sites (especially for statistics).Wikipedia or any open source Web sites are not permitted.
Please submit your assignment.
Accounting Fundamentals
If there is a universal truth in the world of business and finance, it is this: Never run out of cash!
At the outset, this intuitive statement sounds like simple advice. When it comes to actually
doing it, however, this task requires delicate and sound financial planning and control. After all,
cash – whether cash inflow or cash outflow – runs throughout the whole business system and
has to be traced and re-calculated at each step of the way. Our examination of cash flow in this
unit centers on issues of documentation. Specifically, we examine accounting fundamentals,
financial statements, and methods of financial forecasting and planning.
Accounting Fundamentals:
Central to understanding the financial condition of any firm is one basic accounting equation:
Assets = Liabilities + Equity
Assets are the items of value that a business owns. Liabilities are claims on the business by
nonowners, and equity is the owners claim on the business. The sum of the liabilities and
equity is the total capital contributed to the business. In essence, every business at any point in
time can be defined by this statement and its set of financial statements.
Financial Statements:
The primary financial statements are the balance sheet, the income statement, and the
statement of cash flow. Financial statements are either historical or pro forma – projecting the
future. Consequently, financial statements are the ideal vehicles for tracing and determining
the level of cash throughout the enterprise. If measured correctly, we should know precisely:
1. What a companys cash situation is at any point in time – whether surplus or deficit, and thus
be able to
2. Plan accordingly to avoid any cash shortage.
Forecasting and Financial Planning:
After analyzing accurate financial statements, financial managers ask the following question: In
order for this business to run smoothly over a given period of time and as planned, how much
external financing will it need? In other words, they are after the Additional Funds Needed or
AFN for the given company, but how exactly does this work?
AFN is usually calculated through a method known as the percentage of sales method.
Simply put, the percentage of sales method starts with a realistic projection of the sales over
the next period – next year for example. Once we know what sales look like, we are able to
create relevant pro forma financial statements – especially pro forma balance sheets. At this
point, AFN is simply the difference between the projected investment needs (total assets) and
the projected financings (total liabilities and equity). Once the AFN is quantified, financial
managers can then start planning to raise the needed funds in case of deficit – or think of ways
to invest the excess funds in case of a cash surplus
Fundamental Accounting Principles
Accounting is an information system that measures business activities, processes that
information into reports, and communicates the results to decision makers. As the
“language of business,” accounting helps a wide range of decision makers. In this unit,
we will talk about some fundamental accounting principles, as well as how companies
record their financial business transactions.
Generally accepted accounting principles (GAAP) are rules that govern how
accountants measure, process, and communicate financial information. Several
concepts used by accountants include: the entity concept, the reliability principle, the
cost principle, the going-concern concept, and the stable-monetary unit concept.
Assets are the economic resources of a business that are expected to be of benefit in the
future. Liabilities are outsider claims, which are economic obligations payable to
outsiders. The accounting equation is presents the resources of business and the claims
to those resources. In its most common
form, the accounting equation is Assets =
Liabilities + Owner’s Equity.
Financial statements communicate information for decision making by an entity’s
managers, owners, and creditors and by government agencies. The primary financial
statements include:
The income statement, summarizing revenues and expenses incurred
The statement of owner’s equity, reporting the changes in owner’s equity
The balance sheet, listing assets, liabilities, and owner’s equity, and
The statement of cash flows, reporting cash receipts and cash payments
The account is the detailed record of the changes that have occurred in a particular
asset, liability, or owner’s equity during a period of time. Accounts can be viewed in
the form of the letter “T.”
The left side of each T-account is its debit side. The right side is its credit side. The
ledger, which contains a record for each
account, groups and numbers accounts by
category in the following order: assets, liabilities, and owner’s equity.
Assets and expenses are increased by debits and decreased by credits. Liabilities,
owner’s equity, and revenues are increased by credits and decreased by debits. An
account’s normal balance is the side of the account-debit or credit-in which increases
are recorded. Thus, the normal balance of assets and expenses is a debit, and the
normal balance of liabilities, owner’s equity, and revenues is a credit. The Withdrawals
account, which decreases owner’s equity,
normally has a debit balance. Revenues,
which are increases in owner’s equity, have a normal credit balance. Expenses, which are decreases in owner’s equity, have a normal debit balance.
The recording process begins by entering each transaction in the journal, a
chronological list of all the entity’s transactions. Posting means copying the amounts
from the journal to the ledger accounts. Posting references are used to trace amounts
back and forth between journal and ledger.
Accounting Principles
The double-entry system, which is the foundation of accounting, evolved during the
Renaissance. Goethe described the system as “one of the finest discoveries of the
human intellect”. The double-entry system is based on natural “duality” that exists in
every business transaction. All business transactions can be analyzed in terms of two
aspects, such as:
Effort Reward
Sacrifice Benefit
Source Use
In any business, these aspects will offset or balance one another. All accounting
systems, no matter how simplistic or complex are based on this principle of duality. So
how exactly are these principles used in contemporary accounting? This unit focuses
on duality and practice by examining the general ledger system and accruals and
deferrals.
The General Ledger System
Using the principle of duality, financial information is reorganized from a
chronological account into a general ledger through a process of posting. The general
ledger is now the primary record of the financial information of the business and is
organized around basic classification units or accounts. Primary accounts include the
following:
Assets: These are defined as economic resources owned by a business that is
expected to provide future economic benefits to the company. Assets include
cash, accounts receivable, inventories, machinery, buildings and land.
Liabilities: Liabilities are claims against the assets of the company and
represent future economic sacrifices of the business. Liabilities are obligations
held by a company to perform services to customers, employees, creditors and
government bodies.
Owners Equity: The residual value of the business for the owners after all
liabilities are satisfied by the assets.
Revenues: The reward the company receives through its sacrifices.
Expenses: Sacrifices made by the company in hopes of rewards.
Accruals and Deferrals
In order to assess how effectively expenses
help generate revenues, the matching
principal requires that expenses are matched to the revenues they helped generate,
regardless of whether cash has been received or paid. Accruals and deferrals are a
means to do just that. For example,To recognize an expense in the period in which it helped generate revenue, we
either accrue or defer based upon the following:
o If cash has already been paid, but the benefit has not been received, we
defer recognizing this expense until the benefit is realized.
o If cash has not yet been paid, but the benefit has been received, we
accrue the expense to match it to the revenue it helped generate.
To recognize a revenue in the period in which the company exerted efforts
(made sacrifices) rather than the period in
which the cash was received, we will
also either accrue or defer now based upon the following:
o If cash has been received for services not yet rendered, the company has
received a benefit, but has not yet made a sacrifice to earn the benefit.
Under this circumstance, we defer recognition until the sacrifice has
been made.
o If cash has not yet been received for services rendered, we accrue the
benefit because a sacrifice has been made to help generate that benefit.
Through the use of accruals and deferrals, the income statement (which
presents the net results of benefits and sacrifices) will provide more useful
information for investors and creditors who, of necessity, rely on that information.
