Overview of Accounting

Introduction

This test is about an informational presentation to a group of small business owners with no accounting or financial knowledge. It is a report that identify the audiences, purposes, and natures of financial statements and managerial reports. In addition, it will explain the use of financial accounting information in making informed and ethical business decisions.

Audiences, Purposes, and Natures of Financial Statements

Prior to decide the audience, purpose, and natures of financial statement, it becomes necessary the definition of the words. Financial statements are reports that show where the money is, where it comes from, where it goes, and where is now. It can be divided in four categories: Balance Sheets, Income Statements, Cash Flow Statements, and Statements of Shareholder’s Equity. These reports will be finding in the Security and Exchange Commission (SEC) and as a public record, if the business is a public business. Private business will send those reports to owners and lenders of that business. The objective of Financial Statement is to give the audience information about a company’s performance and financial position. They need to be reliable, comparable, relevant, and understandable to the audience. The audience must be willing diligently to study the information provided in the statements.

Balance sheets provide detailed information about assets, liabilities, and shareholder’s equity of a company. Assets are everything that a company owns that have worth-physical property, trademarks, patents, cash and investments. Liability is everything that the company owes, like rent, loans, money owed to suppliers, payroll, or taxes. Shareholder’s equity is the capital or net worth, or the money left over after the sale of all assets and the payment of all debts.

Income Statements are the reports of profits in a specific period, like quarterly, annually or monthly. It is all that rest after subtracted all costs. Managers and board of directors use...