Accounting Cycle Paper 1

Financial statements paper - I was not aware of how much is involved in learning the tools of accounting and how much accounting helps to maintain finances and most of all, balancing statements each month helps a great deal to avoid IRS visits and bankruptcies. Businesses need accounting to stay in business because all economic events and transactions are entered into the business account check book or Financial Statements. Financial statements are prepared carefully and accurately for businesses, business owners and companies. They utilized the four basic financial statements of: Income statement, Retain Earnings Statement, Balance Sheet, and Statement of Cash Flows. These four financial statements are prepared from the summarized accounting data from transactions that are identified, recorded, and summarized. The four statements are useful to managers, investors, creditors, and employees from all types of businesses all around the world. The first financial statement presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time is called an income statement. The main purpose of the income statement is to measure the success or productivity of the companys operations over a specific time period. On the income statement, revenues are listed first, followed by expenses and net income (or net loss) is established which will give us the following equation of Revenues Expenses = Net Income (or net loss). The second financial statement summarizes the changes in the earnings for a specific period of time is called a retained earnings statement. Retained earnings are used to reflect earnings kept in the company and not distributed to the owners in the form of dividends. Total stockholders equity is a combination of contributed resources and retained earnings. The third financial statement reports the assets, liabilities, and stockholders equity

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of a business enterprise at a specific date is called a balance sheet statement. The balance sheet gives economic decision makers financial information that focuses on the present condition of a companys entity (usually the month-end or year-end). The accounting basic equation of Assets = Liabilities + Stockholders Equity are the major parts of a balance sheet. Assets are the possessions a company owns or controls. Liabilities are the debts a company owes. Stockholders Equity is the owners remaining interest in the company. This balance sheet statement is meant to keep both side of the equation in balance. The fourth financial statement summarizes information concerning the cash inflows (receipts) and outflows (payments) for specific periods of time are called a statement of cash flows. The difference between cash inflows and cash outflows is the net cash flow. Positive net cash flow shows that the amount of cash flowing into the company exceeds the amount flowing out of the company during a specific period. Negative net cash flow shows the opposite which is the amount of cash flowing out of the company exceeds the amount flowing into the company during a specific period. The statement of cash flows reports (1) the cash effects of a companys operations during a period, (2) its investing transactions, (3) its financing transactions, (4) the net increase or decrease in cash during the period, and (5) the cash amount at the end of the period (Weygandt, Kimmel and Kieso, 2005). Investors, creditors and other decision makers attempt to predict future cash flows so reporting the sources, uses, and net increase or decrease in cash is very crucial to provide for the companys decision makers. The statement of cash flows, therefore, provides answers to the following simple but important questions (Weygandt, Kimmel and Kieso, 2005):

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1. Where did the cash come from during the period? 2. What was the cash used for during the period? 3. What was the change in the cash balance during the period?

Financial statements are used by economic decision makers that rely on the four basic statements to maintain financial balance upon their businesses. Without financial statements in businesses will most likely result in a great deal of debts, no businesses and evidently, no jobs. The importance of income and balance sheet statements provide valuable information for companys decision makers to keep track of all their financial transactions. Retained earnings are the sum of all earnings of a business minus the amount of dividends acknowledged. Cash flow statements provide information about the causes of a change in a companys cash balance from the beginning to the end of a specific period. Reference Financial Accounting, 5th edition. P. Kimmel, J. Weygandt, and D. Kieso Wiley (2005). Retrieved on March 22, 2007 from https://ecampus.phoenix,edu/content/eBooklibrary/content/Print.aspx?assetid=cc0190a1=d The Effects of Technology on the Accounting Profession Paper The effects of technology on the accounting profession have made some positive impacts for businesses and their increasing difficulties in business transactions. Computer technology appears to bring new developments in software and hardware for the accounting business therefore; businesses may be looking for faster ways to perform routine accounting tasks. Another positive effect in information technology is the advancement of information that is available at a low cost instead of having to spend a great deal of money to prepare external reports. I feel that companies must manage

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accounting information activities by strategic issues which are monitoring services by both internal and external auditors and increasing the difficulty of the reporting mechanisms. The negative effects of technology for some companies, such as Enron and Global Crossing, have stunned the world with their fraudulent financial activities. These unfortunate events brought a demand for accounting and accounting systems improvements. I feel that the effects of technology on the accounting profession for Enron and other companies created opportunities, for example, lack of auditing may have contribute to commit fraud within the company that did not have an updated or sophisticated accounting information system. Since the new millennium, computer engineers are learning to improve computers every day with the feedbacks from their consumers and the biggest consumers are businesses. For the business accounting profession, computer systems allow accountants and auditors to be more mobile and to use their clients computer systems to get necessary information from databases and the Internet. Today, accountants are beginning to perform more technical duties which may be easier for them to understand and maintain their computer systems. More accountants and auditors with advanced computer skills are focusing in correcting problems with software or in developing software to meet accounting management needs. With information systems becoming more automated can effect in less entry-level or clerical jobs by taking their place as far as filing and preparing business reports for companies. Systems analyst and systems security experts are in demand with the growing difficulty of information technologies that can set a company back a great deal of money if computer issues are not being handled and maintained. The accounting profession appears to have its ups and downs in terms of learning

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the technical side of the information systems and maintaining the necessary reports that decision-makers need in order to keep their businesses alive and healthy.

Sarbanes-Oxley Act Article Analysis The article that I chose to write about is Why SOX Matters to Small Private Companies. Some small companies may be starting off small financially but in order to keep the companies going in the right and true direction, protecting the company and their investors from corporate scandals should be one of their highest priorities. Peggy Jackson, a risk-management consultant and author of the forthcoming book SarbanesOxley for Small Business: Leveraging compliance for Maximum Advantage (Wiley, Sept. 2006), states that protection for the investor -- but also protection of the company -- is the perspective from which Jackson approaches voluntary SOX compliance. The private businesss compliance efforts, she explained, will make a company worthy of fill-in-the-blank. Its a means by which the company can document and prove and demonstrate the business is attractive to deal with, and that its a good risk. (SmartPros, 2007) Working with companies that use the minimum security to their internal control can pose an open gate to those exploiters for them to take advantage of the weakest departments of the company. With this weakness against the company,

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the companys management will have a tough time appeasing their investors and regaining their confidence again. The article also states that small or private companies should commit to a higherstandard internal control practices that will show accountability to the banker or venture capitalist, and possibly negotiating a decent insurance premium. The cost of the SOX law may be costly to a small or private firm but running a company with no solid internal control is like owning a vehicle with insurance, what happens when the company gets hit? The company will most likely have to use lawyers and investigators to handle their unfortunate situation, whereas under the SOX law, Section 404 requires both the CEO and CFO to evaluate their organizations internal controls over financial reporting and attest to them. They do so in an internal control report that is filed with the annual report. This section also requires that the external auditors report on managements internal control assessment. I have worked for one particular company that practiced the SOX law by posting the Sarbanes-Oxley Act on the employee bulletin board and what to do if someone should break or challenge the law which I think kept a solid control of any acts of exploiters in the company. Reference SmartPros Ltd. (2007).Why SOX Matters to Small Private Companies. Retrieved on October 28, 2007 from http://accounting .smartpros.com/x53765.xml

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