Accounting

Cassie Boykins

American InterContinental University

Principles of Accounting I

ACCT205 - 1302B – 02

Rubiela Mendieta

June 28, 2013

The role of accounting in business is to provide a way to keep track of the company’s income and expenses, along with all of the other financial inputs of the business. By analyzing the financial performance of the company (as reflected in the financial documents), management can determine how the company is doing, what expenses are out of line, which revenue streams need to be enhanced, which areas need additional budgeting for the future, and so on.

There are a number of different ratios that can be used to help make business decisions. By comparing one set of figures to another in certain specified ways, the analyst can learn some key facts about the company. The quick ratio, for example, is taken from the balance sheet information. It excludes inventor, supplies, and expenses that have been prepaid and indicates whether or not the company has enough assets that it can quickly turn into cash, to pay off current liabilities (Accounting Coach.com, 2013)

Another ratio that is very important is the current ratio, which reflects the relationship of current assets to the current liabilities. By taking the number of current assets and dividing them by the current liabilities, a ratio is found. A 1:1 ratio means that the assets = the liabilities. The higher the ratio of assets to liabilities, the better for the company. The company can analyze the information on the accounting data to determine the historical trends of the company to determine the best way to allocate resources for the future.

Assets – some type of property with a value, which the business owns

Retained earnings – the amount of profit the company keeps and does not give to the shareholders. Retained earnings would typically be used for high value purchases, new buildings, and so on (Johnson, 2013).

Accounting sentence – Assets = Liabilities +...