The Role of Accounting on Business and Our Society
Stephanie R. Phillips
February 27, 2014
When most people think of accounting, they think taxes, but accounting is so much more than that. Accountants are responsible for maintaining the financial health of our businesses. They also practice with an ethical standard that protects the public from unfair and one sided business and government practices. So next time you take your box of unsorted receipts to your tax preparer be sure to thank them for what they do the rest of the year.
The four financial statements in the accounting process are an income statement; owner’s equity statement; balance sheet; ...view middle of the document...
The balance sheet is the most important for several reasons. Business owners are able to quickly see the assets and liabilities of the company, allowing the owner to identify the strengths and weaknesses within the company’s finances. A balance sheet is equally important to banks and investors in order to determine what amount of money should be loaned or invested (Pittelkow, 2011). Without a balance sheet, investors and banks would not be able to accurately gauge the risk of loaning or investing in a company.
Most people think an accountant and a CPA are one in the same, and although they often perform similar functions within a company, the educational requirements are very different. The duties of an accountant vary depending on the size and needs of a company (Davis, n.d.). In a small company, an accountant would be responsible for the collection, entry, and reporting of all financial data. Larger companies may also have accountants who interpret and advise based on their financial data (Davis, n.d.). A CPA on the other hand must pass four certification exams and have work experience before obtaining a CPA license, and that’s after they have obtained a four year accounting degree (Kuhl, 2013). A licensed CPA would be a better choice for a rapidly growing or larger company. The continuing education and experience of a CPA would allow them to handle every aspect of the accounting process for a company (Kuhl, 2013). If you really give some thought to the way an economy exists and functions, it becomes very obvious that accounting is the heart of an economy. Every aspect of a business depends on an accountant of some type. Without accountants, the U.S. economy would likely collapse.
If I were to create my own business venture, it would be a merchandising company. From an accounting perspective, a service company may seem easier because it requires fewer charts of accounting than a merchandise company (Weygandt, Kimmel, & Keiso, 2013, p.218). In a service company the accounting would require fewer types and number of accounts because the company only has one purpose, to provide a service for a predetermined fee. In a merchandising company you must account for inventory. Accounting for inventory requires you to keep separate records for cost of goods, goods on hand, and goods sold. A merchandising company must also account for purchase returns and allowances (Weygandt, Kimmel, & Keiso, 2013, p. 226). The most effective way to collect and process transaction data is to use an automated accounting system. Using an...