Financial Paper

Financial Paper

University of Phoenix

ACC/280

Paula White

February 22, 2011

Accounting is the study of how companies can track their assets / liabilities and income / expenses over time. Accounting is a way to observe the basics of how a business works, by looking underneath the hood of what drives the profits in a company. Accounting helps you understand the organizations financial situation, such as: assets, liabilities, and stockholders’ equity. Accounting encompasses the core elements of business and by following standard practices and properly maintaining the financial statements any manager can use accounting to keep their business on track.

The purpose of accounting is to keep track of transactions and record the revenue and expenses of the company. This process is often handled by the accounting department or a financial manager. Accounting helps companies to record, analyze and retrieve important financial data that can be used to identify the company’s financial rank. It also helps investors and management make sound financial decisions by providing reports and insights needed to understand the company’s situation. It maintains the organization running properly, by monitoring and handling financial data that are typically arranged in journal entries and ledger. It is important to understand that accounting helps identify and record all activities that impact the organization financially. Being so, prospective accountants develop systems to evaluate and analyze the different types of transactions and record them in ledger and posted to relevant accounts.

The four financial statements are the income statement, retained earnings statement, balance sheet, and statement of cash flows. With all four financial statements it works together in a sequence. The first thing that happens is the net income is calculated to determine the ending balance in the retained earnings. Then the ending balance in retained earnings is required in preparing...