The Role of Accounting on Business and Our Society - Essay Example

The Role of Accounting on Business and Our Society Organisations use accounting information for various purposes, be they general or specific. Importantly, financial statements would be used to communicate accounting information for general purpose to external stakeholders (Gibson, 2012). The balance sheet or statement of financial position gives a report of the financial position of an organisation at a particular time. Thus, it reports on what the business owns as assets, what it owes as liabilities and the amount owned as owner’s equity, at a particular time.

The income statement reports on what a business entity earned during a given period of time. It entails the earnings from provision of goods and services less the cost incurred in providing those goods and services. Thirdly, the statement of owner’s equity reports on the activities of shareholders during a given period of time. It shows how much the business received from shareholders and how much went back to them in terms of dividends. It shows the portion of a business entity’s earnings that goes to shareholders, thus the reference to it as a statement of retained earnings by some companies.

Finally, the cash flow statement shows sources of cash during a given period of time and its uses. To me, the income statement is the most important. This statement shows how much a business entity earns within a given period of time (Gibson, 2012). Of course, businesses are established with the purpose of making profits and creating wealth for its shareholders according to Mittal and Singal (2007). Therefore, if a business posts losses on this statement, it does not serve the purpose for its existence and should be wound up.

However, if it records profits, then the venture is sustainable and meets the intended objective.2. An accountant would be that person with a bachelor’s degree specialised in accounting or any specialisation in finance. At times, an accountant would be that person who has gained experience dealing with financial matters over time. The roles of search persons have historically been bookkeeping. They prepare financial records and maintain them. With additional professional certification, then such an accountant would qualify as a certified public accountant, CPA (Walker, 2012).

This comes with greater roles as CPAs conduct financial audits thus fostering transparency and accountability. Such a person holds public trust and should be fact-based, non-ideological and nonpartisan. The arguments for accounting include its role in giving objective and unbiased information on the performance of a business entity as they follow the generally accepted accounting principles, GAAP. This makes accounting a source of reliable information for decision making in an entity. Furthermore, because of abiding by set standards, accounting is credited for consistency which makes comparison of an entity’s performance over a period of time and against other entities realistic.

Finally, accounting enhances organisation of complex data into more meaningful reports that could be used for decision making (Gilbertson & Lehman, 2009). However, accounting could be a costly venture, especially for small business entities (Walker, 2012). Because of its adherence to GAAP standards, accounting could hinder organisations from reporting their performance in ways that best depict the position of such organisations. Accounting has also been noted to be a time-consuming venture. 3.

Between service and merchandising, my choice for a business venture would be service. The charts of accounts for these two types of business ventures would be different. According to Gilbertson and Lehman (2009), because the service industry does not have physical inventory like in merchandising business, it would have its asset account reflecting lower amounts. Furthermore, its liability account could be lower, specifically when no physical location of operation is involved as opposed to a merchandising business which has rental, electricity, water and warehousing obligations because of the need to house its physical inventory.

Because of the higher volumes of physical assets in a merchandising business than in a service business, depreciation would impact more on merchandising business.4. Implementing automation for accounting in the service entity selected above would be beneficial in increasing reliability, timeliness, cost saving and accuracy in accounting information (Gilbertson & Lehman, 2009). At the same time, such automation reinforces internal controls against theft and frauds. With an automated system, proper authorisation would be enforced as this would be done in a system which unlike the manual authorisation cannot be forged or compromised.

With regards to separation of duties, automation would limit the powers of each worker to given thresholds. As such, one would only do what the given powers would allow, making such persons only stick to their duties. Specifically on fraud and theft detection, automated accounting systems would immediately send an alert on realisation of diversion from the set plan (Mittal & Singal, 2007). Unlike the manual process which could take long before realisation of such, this prompt realisation would be critical in averting losses.

ReferencesGibson, C. H. (2012). Financial reporting and analysis: Using financial accounting information (13th ed.). Mason, OH: South-Western Cengage Learning.Gilbertson, C. & Lehman, M. W. (2009). Fundamentals of accounting. Mason, OH: South-Western Cengage Learning.Mittal, R. K. & Singal, R. S. (2007). Financial accounting. New Delhi: V. K. Enterprises. Walker, D. M. (2012). The CPA’s role in restoring fiscal sanity. Journal of Accountancy. Retrieved 8 March 2014 from http://www.journalofaccountancy.

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