Accounting Overview

Overview of Accounting

This presentation is to give information to a group of small business owners with no accounting or financial knowledge. The presentation is designed to help the small business owner understand and fulfill their accounting and finance responsibilities. I will identify the audiences, purposes, and natures of financial statements and managerial reports. I will also explain the use of financial accounting information in making informed and ethical business decisions.

Identifying the Audience

Financial and managerial reports are useful to different users for different reasons; depending on who is in your audience. The users of financial statements include present and potential investor, lenders, suppliers and other trade creditors, governments and their agencies and the public. They use financial statements in order to satisfy some of their different needs for information.

Financial statements and managerial reports provide for investors the risk inherent and the return provided by their investments. They require information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the enterprise to pay dividends. (Block, Hirt 2005)

Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.

Suppliers and other trade creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likely to be interested in an enterprise over a shorter period than lenders unless they are dependent upon the continuation of the enterprise as a major customer.

Governments and their agencies are interested in the allocation of resources and, therefore, the activities of enterprises. They also require information in order to regulate the activities of enterprises, determine taxation policies and as the basis for national income and similar statistics.

Enterprises affect members of the public in a variety of ways. For example, enterprises may make a substantial contribution to the local economy I many ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the enterprise and the range of its activities.

Financial Statement Purpose

The financial statements are the income statement (period of time), balance sheet (point in time) and cash flow statements (period of time). Financial statements form part of the process of financial reporting. A complete set of financial statements normally includes a balance sheet, and income statement, a cash flow statement, notes and other statements and explanatory material that are an integral part of the financial statements. They may also include supplementary schedules and information based on or derived from, and expected to be read with, such statements. The purpose of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements prepared for this purpose meet the common needs of most users. However, financial statements do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide non-financial information.

Ethics and Decision Making

In the article “Business and Accounting Ethics” written by Dr. K. T. Smith and Dr. L. Murphy Smith, the authors affirm the need for ethics and decision-making in accounting due to recent unfavorable business practices.