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Accounting Essay

2938 words - 12 pages

SMT640
Group Research paper
Fall 2014

You have been named the Chief Financial Officer (CFO) of a two year old company, CUNY Analytics. Financials have been prepared by a bookkeeper. As CFO, you responsible for the preparation of accurate financials, analysis and review of the financials before they are released and communication of the results of your company to banks, investors, creditors and the government, as necessary.

Please complete the following:

a. What are the four major financial statements and, in depth, discuss their purpose.

The four major financial statements are the balance sheet, the income statement, the retained earnings statement and the statement of cash ...view middle of the document...

This allows investors to determine whether or not to purchase and or sell their stock. If the company is predicted to be well off and can meet its obligations, then investors will buy stock. If it seems like the company will not do well, then they will sell or just not buy any stock costing the company its investors.
The Retained Earnings Statement provides users the net income retained in the business for a specific time period. It shows the amount and cause of changes during a reporting period while simultaneously allowing users to evaluate dividend payment. External users mainly use this because they evaluate the dividend payout.
The Statement of Cash Flow provides information about cash receipts and cash payments of a business at a specific period of time. It provides an idea of the company’s cash position, which includes the net increase and decrease, inflows and outflows of cash through three major components: operating activities, investing activities, and financing activities over an accounting period. The operating activities include the cash effects of transactions that create revenues and expenses. It helps determine net income for that year. The investing activities include the sales and purchases of the company. It also includes the lending of money and the collecting of loans. The financing activities section shows how cash was obtained from issuing debt and repaying the amounts borrowed and obtaining cash from stockholders, repurchasing shares and paying dividends. Therefore, the three components show where the cash came from, how and where the cash was used, and the change in cash balance during the period. The purpose of this is to give analyst an understanding if a company can cover its expenses and liabilities while determining whether or not the company can generate sufficient cash to continue operations.
Overall, financial statements help determine the financial position of a company and help the users of the financial statements with their decision-making.

b. If an outsider is looking for the path of growth of your company, where would you direct them to look? What financials and financial information would they look at?

Natalie will need the balance sheet and the cash flow statement in order to evaluate whether Biscuits will be able to survive over a long period of time. These statements, if not already provided for her in the annual report, will allow Natalie to calculate solvency ratios. These ratios measure the ability of the company to survive over a long period of time. Natalie should look for a high solvency ratio because it means the company is more than likely to pay their debts.
In order to evaluate Biscuits’ profitability Natalie will need an income statement. The income statement reports the amount earned during the period, the costs incurred during the period and the net result. From this statement, Natalie, if its not already provided for her, can calculate and evaluate profitability ratios. These...

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