Accounting and Four Financial Statements
ACC / 280
September 19, 2011
University of Phoenix
Accounting will be described and discussed in detail, allowing for a clear understanding of what accounting is. Scandals pertaining to accounting will be discussed in order to get full emphasis on the importance of it. In addition, the four basic financial statements that are involved in accounting will each be defined, discussed, and the importance of each and how they interact with each other will be discussed. How they are interrelated with each other, and why they are useful to managers, investors, creditors, and employees will be discussed.
Accounting dates back to 7,000 years ago in Mesopotamia. Assyrians relied on accounting to record the growth of crops and herds. Accounting is the process of communicating financial information about a business or corporation to users, such as: stakeholders, managers, investors, creditors, and employees. (Britannica, 2011) According to the Oxford English Dictionary, accounting is simply defined as the duties performed by an accountant. It involves recording, classifying, and summarizing in terms of money, transactions, and events. (Britannica, 2011) There are four financial statements vital to evaluate the performance or routine of a business: balance sheet, income statement, retained earnings, cash flows.
The balance sheet is used to report the financial position of an accounting entity at a particular point in time. (QuickMBA, 1999-2000) The formula, used to calculate the balance sheet is as follows: Assets = Liabilities + Equity. (QuickMBA, 1999-2000) Assets can be either fixed or current. Fixed assets such as: land, building, and/or equipment are usually recorded in historic cost. Historic cost is an approach to accounting using asset values based on the actual amount on money paid for assets without inflation adjustment. Current assets such as: cash, account receivables, inventory,...