Accounting

Accounting

Accounting is a system of record that records, reports, and analyzes the financial transactions within an organization. It uses four basic financial statements, income statement, retained earnings, balance sheet, and last but certainly not least the statement of cash flow. The accounting system will give people whom have any type of interest in the organization, an idea of the financial condition the organization is in.

The four basic statements are detailed reports which contain different information. The income statement measures an organizations financial performance within a specific period of time. It summarizes an organizations revenues and expenses for both operating and non operating activities. Retained earnings statement records the starting point and the end point for a certain period. It gathers information from other financial statements such as net income. It is reported according to the generally accepted accounting principles also known as GAAP, and can be either a separate statement or ca be included on the balance sheet or income statement. The retained earnings statement is also known as statement of owner’s equity or shareholders equity. The balance sheet gives a summary of an organization’s assets, liabilities, and shareholders’ equity for a specific point and time. It gives a detail of what the organization owns, owns, and any amounts invested by shareholders. The balance sheet follows a formula, assets=liabilities +shareholders’ equity. This formula makes sure the accounts are balanced because it has two sides to balance. Statement of cash is different from the income statement and balance sheet. This statement does not include future or ongoing cash that has previously been recorded on credit. The cash flow statement determines cash flow by reviewing cash that enters, cash that leaves. They are measured by three components, core operations, investing, and financing.

These statements are used for various reasons and by...