Principles of Accounting

Understanding what is happening financially in the company insights provides the financial information system of accounting.

One must have knowledge of numbers when working in accounting. The three basic activities in accounting are identifies, records, and communicates. The four financial statements are income statements, retained earnings statement, balance sheet, and statement of cash flow. Internal and external users are the groups that review financial information (Weygandt, 2008). The preparation of financial statements, are in an uncomplicated layout, easy to understand. Reporting financial statement accurately is important because if there is an error this can cause complications for the company or organization.

Financial Statements Accounting is the financial information system, which provides the understanding of what is happening financially in the company insights and provides an exceptional contribution to the success of any small or large company. Specifically, accounting assists company owners in their management decisions by providing valuable financial information. In an accounting career there is a set of customary principles and regulations guide to follow in financial reporting. The three basic activities in accounting are identifies, records, and communication. Financial reports consist of a set of customary principles named general accepted accounting principles (GAAP).

The four financial statements are an income statement, retained earnings statement, balance sheet, and statement of cash flows. The two broad groups of users of financial information are internal users and external users. Accountants have ethical responsibility to report financial information accurately. Report information given to users should always be accurate and reliable. The reports information presents users with an uncomplicated format.

Three basic activities of accounting1. Indentifying is the first accounting activity. To identify economic events, a company selects the economic events relevant to its business (Weygandt, 2008). 2. Record consists of keeping a systematic, chronological diary of events, measured in dollars and cents (Weygandt, 2008).3.

Communicate is the collection of information to interested users by means of accounting reports or financial statement. The financial statements are the most important reports in accounting.Four Financial Statements and how they interrelated with each other 1. Income Statement An Income statement assists creditors in determining eligibility. Income statement reviews the revenues and expenses showing the net income or loss at a specific time period (Weygandt, 2008). A simple equation used to describe income is Net Income = Revenue – Expenses.

Net income amount from the income statement linked to the retained earnings statement. 2. Retained Earnings statementA retained earnings statement summarizes the alteration in retained earnings for a specific period (Weygandt, 2008). The retained earnings statement presents separately or in a combined statement of income and retained earnings. The ending balance in retained earnings is link to the balance sheet.

3. Balance SheetA balance sheet is a useful tool that can help determine how much value a business has. Balance sheets provide amounts that allow one to apply the accounting equation: asset = liabilities + equity. Businesses with low equity may identify as risky to creditors who would be wise not to extend credit to them. Financial statement compiled by accounting is the income statement; this also assists creditors in determining eligibility.

The cash from the balance sheet reconciles the statement of cash flow. 4. Statement of cash flowA Statement of cash flows report receipts and payments from a specific time periods (Weygandt, 2008). Operating, investing, and financing are in the statement of cash flow. A Companies values is on how much cash the business is capable of generating.

Users of Financial InformationVarious individuals and institutions rely on the financial information provided by the four financial statements when they need to take important management decisions (for example, investing in a company, leading money, and so forth). Two broad groups of users of financial information, which are internal users and external users. Internal UsersIndividuals inside a company who plan, organize, and run the company is internal user. For example, directors, supervisors, manager, employees, etc. Upper management frequently takes planning and controlling decisions based on the financial information they could gather.

External UsersExternal users are those individuals and institutions that want financial information about specific organizations. For example, external users such as stakeholders, investors, creditors, and bankers, discover information they read the reports to see if a specific company is worth to invest their money. ConclusionIn conclusion, accounting consists of three basic activities: identifies, records, and communicates. Accounting can help by finding the most convenient strategies to raise money. Indeed, accounting assist company owners in their financial decisions by providing valuable financial information.

Often owners and managers consult the company’s financial documents before taking any actions. Various individual and institutions rely on the facts included in the all the financial statements. Users split into two main groups, external and internal users. Financial information may differ according to the type of information a user needs.