Financial Statement Essay

Financial Statement

Accounting is the recording of financial transactions plus storing, sorting, retrieving, summarizing, and presenting the information in various reports and analyses (Accounting Coach, 2004). Accounting is part of everyday life; from managing our personal finances to managing the accounting records of a large company. The key to a successful company in today’s business climate is to run quickly, efficiently, keep up with today’s evolving technology, and keeping in mind the importance of maintaining a small margin for error (Money Instructor, 2012). In an effort to keep up with the ever changing fast moving business world, it is a necessity for companies to assure operations run as efficiently and smoothly as possible to remain relevant and competitive. An important part, if not the most important, of any business is the company’s accounting records. The accounting department is the foundation of the business and maintaining precise company accounting records is essential to its survival. The lack of maintaining proper accounting records would produce pure chaos for any business. Improper maintenance of accounting information can lead to the inability to correctly track in-coming and out-going transactions and inventory which can result in loss of revenue and profits for the company. It is virtually impossible to know if money was being embezzled from the company if accurate accounting records are not maintained. It is impossible to run a business without the use of accounting. The business would surely suffer resulting from its own ignorance and lack of attention to financial details.

There are several basic assumptions, principles, and constraints of accounting. They are as follows: monetary unity assumption, economic entity assumption, revenue recognition principle, full disclosure principle, matching and cost principle, time period assumption, going concern assumption, conservatism and materiality (Accounting Coach, 2004). These are very important guidelines in the world of accounting and must always be fully considered when maintaining company financial records. Each one of these guidelines represent an important purpose in making accounting work for companies in today’s business world. If the aforementioned principles, assumptions, and constraints are properly administered, they can mean the difference between success and failure for a company.

In addition to the various assumptions, principles, and constraints of accounting, there are four interrelated financial accounting reports, (Balance Sheet Statement, Profit and Loss Statement, Cash Flow Statement and Retained Earnings Statement), that are an intricate part of properly recording and maintaining financial records. For instance, the Profit and Loss Statement is utilized to illustrate a company’s income. It clarifies how and where the company is making money, how and where the money is distributed