Accounting In Society Essay

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The Role of Accounting on Business and Our Society Financial statements are formal records that represent the financial activities of any business entity. Financial records are used to calculate the performance, financial strength and liquidity of a company. There are four basic types of financial statements: 1. Statements of financial position also known as Balance sheet. Balance sheets are used to report the financial position (assets, liabilities, and stockholder’s equity) of a business at a given date. 2. Income statements also called Profit and Loss statements (statement of earnings, income, or operations). These statements are used to report the company’s net profit or loss over a specified financial period. It is arrived by deducting the company’s expenses from the company’s total income. 3. Cash Flow Statement. This statement gives a summary of movement in cash and bank balances over a given financial period – cash within the company. 4. Statement of Retained Earnings also known as Statement of Shareholder’s Equity. This type of statement is used to give details of the owner’s equity movement over a given financial period – the way the net income and distribution of dividends affected the company’s financial position. The most effective financial statement in communicating the financial health of an organization is the Statement of changes in equity. This statement sums up the profit and loss earned during the financial period and the effect, additional investments that was made or disinvestment, how profit was distributed in the business and correction of errors made in the prior period (Peterson & Fabozzi, 1999). The user of this financial period can be able to immediately learn the effects of the business operations ... ... middle of paper ... ...There is less room for errors in when using automated accounting programs. The overall advantage of automating accounting processes is efficiency. Internal control includes all activities and processes that control or prevent risks and fraud. Types of internal control measures that can be used in the service industry are: 1. Segregation of duties:-This is done by giving the roles of authorization, custody and record keeping to different people reducing the chances of error or fraud by one person. 2. Supervision and monitoring of operations: - In this control process ongoing operational activities are keenly observed and reviewed. This ensures effectiveness and efficiency of operational activities (Harrer, 2008). 3. I T controls: - IT can be used to ensure that access to data and systems is restricted to authorized personnel only by using access logs and passwords.
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