Financing a business:  Financing for a company is critical, because they need that money to continue their operations.

Investing in a business:  Companies invest in their current assets so that it will make money for them in the future.

Producing goods or services: Operations and production management is responsible for developing and producing goods and services that the company can sell.

Marketing: Learning marketing and advertising skills so that they can distribute goods and services more efficiently.

Managing workers:  Human resource management requires the hiring of qualified employees, and also paying them.

Providing information:  The information management retrieves data about the company such as how much they made in the last month, and organize the information in a way so that it can be used. It also releases information to managers and to important people outside the business.

Another group of individuals that needs knowledge in accounting is those you have a direct interest in the business, go figures.  They use the information to analyze how a business is performing.  Most businesses generally publish their financial report which shows how well they meet their profitability and liquidity goals. These statements show how well a company did in the past and probably most important, how well they will do in the future.  However, many people outside the business also study the financial reports.

They are the investors and the creditors.  The investors are the individuals that invest in a business and will keep a part of the ownership. They are concerned with their past success and failures, and also will like to know the potential earnings. A concrete analysis of the financial statement will help prospective investors base their decisions.They must continue to study a business financial statement once they finish investing.  Next, the creditors are the companies that lease money to businesses for short or long term needs.  Creditors are the people that deliver money or provide services for companies in advanced before getting paid.  Their main concern is whether a business will have the money to repay the money with interest in an approximate time. They study some of the things before they make their decisions are a company’s liquidity, cash flow, and profitability. Some examples of creditors are mortgage companies, banks, and insurance companies.

Over the years the shift of people who used accounting information has varied drastically. Now, it is heavily used by governmental agencies, and in matter of fact taxes is the main source of income for government. According to the rules and regulations of federal, state, or even local laws, individuals and companies are required to pay a variety of taxes. These include but are not limited to, sales tax, excise tax, social security tax, federal, state, payroll, and city income taxes.Each tax needs their own rules and regulations, which can be very confusing at times.  Reporting your taxes is a law and a very meticulous and tedious process.For example, the Internal Revenue Code contains over a thousand of rules for delivering accounting information in federal income taxes.  Also, most companies generally have to report to one or more regulating agencies in the United States All corporations must answer to the Securities and Exchange Commission or SEC.  This is set up by the government to insure and protect the public by regulating the buying and selling of stocks.  Companies that are listed on the Stock exchange must adhere to the rules and regulations.Some other groups such as labor unions evaluate the financial statements of corporations to help settle a contact.

The income of a company plays a major role in forming these contracts. The persons who give advice to investors and creditors such as brokers and financial analysts have an indirect financial interest in a business.  The amount of inertest in the financial health of corporations has been growing by consumer groups such as customers and the public.  They are also concerned about how the corporation will affect the social patterns of the environment and of the people that reside in that area.The Federal Reserve Board and the President’s Council of Economic Advisers use accounting information to set economic policies and programs.  It’s interesting to note that about thirty percent of the businesses in the United States consist of non profit organizations.Some examples of non-profit organizations (NPO) include hospitals and universities.

Some well known non profit organizations include Red Cross, YMCA, Better Business Bureau, and WWF(World Wildlife fund, was formerly in a lawsuit and won against WWE World Wrestling Entertainment, which was originally known as World Wrestling Federation). You may think that the managers of these companies do not need to know their accounting skills, but they do.They still have a budget and wants to raise money just like any other business.They raise money by collecting it from donors, creditors, and even investors. They also need to have a proper plan and to pay creditors back in an efficient manner and they also have to follow the tax rules.  So even though businesses and non profit organizations have different agendas they both generally follow the same basic rules.

Accounting is a systematic information system that measures, process, and communicate information, I particular financial.They must answer four simple questions when an accountant is making a measurement.  First, what is being measured, second when should a measurement be made, third how much money should be placed on what is being measured, and last how the measurement should be classified.  This information about Tough Money Decisions I got from my friend, who is working for Vision Infonet which is the leading provider of Medical Transcription, Medical Billing, and Electronic Medical Records.  These four questions deal with the basic rules of accounting, and the answers help establish what accounting is and what it is not.  Accountants in different fields challenge these questions every day, and therefore the answers are changing often so that’s why it’s a good idea to keep to date with some of the trends. The first question deals with what is measured. Consider a machine that makes clothes.  How many different measurements of this machine can you make? Well, you can measure how much it costs, how many t shirts it can produce, and how quickly it can produce the t shirts.  Some of these measurements are extremely important to accounting and some of them are irrelevant.  Financial accounting will use money to see how business transactions affect other businesses and corporations.

A company’s financial position indicates the amount of resources that they have, and also the claims against those precious resources at any time.  Claims can also be referred as equities. So, a company can be known as a combination of economic equities and resources.

Economic Resource=Equities.

No mater what type of business your in, every type of company has two different types of equities. They are creditor’s equity and owner’s equity.

In another way Economic Resources= Creditors Equities +Owners Equity.

When using accounting language, the economic resources a company has at a particular time is called their assets?  On the other hand the amount of creditor’s equity a company has is known as their liabilities.  So here is the standard equation of accounting or better known as the accounting equation:

Assets=Liabilities + Owner’s Equity.

Similar to an algebraic equation, both sides of the equation has to be equal. This equation comes in handy when analyzing the financial effects of your everyday business activities. Let us talk about a very essential concept of any business. Assets are known as the economic resources that a business has that are expected to generate money for them in the future.

Some examples are real estate and any other property that a business own so that they can rent out to people.  If a business is owed money than it goes into what is known as accounts receivable which are monetary items. However, there are some assets that are not physical. Some examples are copyrights, trademarks, and patents, but they are still too valuable to a business.  Next, liabilities are the obligations that a business has such as paying cash, provide future services to individuals, or transferring assets to another entity.  These are known as the debt of a business or the money that they have to owe in the near future. All of these are registered in the accounts payable.

As I’m sure you know, having a lot of debt is not fun and liabilities/debt are claims that are seen by the law. If they do not pay their debt on time, the law gives creditor (People that money is owed to) the right to push the sale of a company’s assets.  Creditors have a ton of rights over owners and they have to be paid in full even before the owners receive anything. It is very possible for a debt to consume up all a company’s resources. Next, owner’s equity refers to the claim that owners of a business make in regards to the assets they have. It is the residual interest or the remaining assets of a company after deducting the amount of entity liabilities.

Here is the equation for owner’s equity.

Owner equity=Assets-Liabilities.

The owner’s equity within a particular corporation is referred as stockholders equity, so the equation then looks like this.

Assets=Liabilities +Stockholder’s Equity.

The stockholders equity has two distinct parts which are the contributed capital and retained earnings.

Stockholder’s Equity=Contributed Capital + Retained Earnings.

The amount than an individual stockholder puts into a business is known as the contributed capital. Contributed capital is usually divided into two separate parts known as par value and “par value” and “additional paid in capital.”  The retained earnings are the amount of equity that is earned by stockholders from the income generating activities of a business that are kept for future uses by a business. Retained earnings are affected by three types of transactions, which are revenues, expenses, and dividends.The decrease and increase in a stock are known as expenses and revenues respectively and these come from operating a business whether online or offline. If you are online than an operating expense that you will have if you have your own website is your domain name and hosting service.

Another example is if a customer agrees to pay you in the near future for a service that the company will perform. The money is recorded in the accounts receivable (asset account) which increase the asset value but decrease the stock holder’s equity amount which is an example of revenue. However, if a company promises to provide a service in the future than this is known as an expense. When this happens the assets decrease (accounts receivable) and the liabilities (accounts payable) is increased, which makes pretty good sense right? When the revenues exceed the expenses this is known as the net income which is good, and on the other hand when expenses are greater than revenues than this is known as net loss which means that you’re losing business or your business costs more to operate than what you make. Dividends are the distribution of assets to stockholders which refer to the past earnings.Do not confuse expenses with dividends because they both are reducing the retained earnings amount. Retained earnings are the collected net income or revenues minus expenses.

The financial statements are the main way for communicating information about a business to those who have some type of interest in it. What helps me is to think of these statements as a type of model for business because they display how a business is doing in financial terms. However, like a variety of methods and models, financial statements are not perfect and have their errors. There are four main financial statements, and they are income statement, the statement of retained earnings, the balance sheet, and the statement of cash flows.  What the income statement does is summarize the revenues earned or the money made, and the expenses or the money that is deducted from a business. Many accountants consider it the most important financial report because it makes it clear whether a business has met its profitability goal.

The next one is the statement of retained earnings, and it displays the retained earnings over a period of time.  The time that the retained earnings will be zero is when a company first started out in their accounting period. A lot of companies use the statement of stockholder equity as a substitute of retained earnings. This is a clear-cut statement because it displays not only the aspects of retained earnings, but it also shows the changes in the stockholders equity accounts.  Next, the financial situation of a business on a particular date, usually on the end of the month or the year is the balance sheet.  The balance sheet displays the value of a business according to their assets and the claims against those assets which are the liabilities and the stockholders equity.

Last, the statement of cash flows is geared towards a company’s liquidity measures.They are generally the flow and outflow of cash in a company.  The net cash flow is the subtraction between the inflow and outflow of money.  The statement of cash flows also display the money generated by simply operating a business, and it also displays the investing and financing transactions that occurs during a particular accounting period. This information about Accounting Equation I got from my friend, who is working for Vision Infonet which is the leading provider of Medical Transcription, Medical Billing, and Electronic Medical Records. 

                   To see how well a company is doing with managing their long term assets you just need to know where to look. Some places you can find this is in the reported total assets, net income, and cash flows that are related to the investing activities of a business.  An idea of how a company is utilizing long term assets can be found in their financial statements. A company that is particular good at this just happens to be one of the largest food companies and goes by the name of H.J Heinz or that famous ketchup company.  It has close to 66 percent of its total assets are classified as long term assets.  The income statement comes in handy because it displays depreciation of assets over time, and Heinz has had about 299 million dollars worth of depreciated expenses.

                      Long term assets are constantly looked at to see if some of the assets have loss some of its value which will result in what is known as asset impairment. Getting rid of long-term assets could show gain or loss on the income statement, it just depends on the situation.  So, long term assets are classified as assets that have a relatively long life, usually of at least one year. Second, they are utilized for the operation of a business, and third, they are not normally resold. In the past years, long-term assets were usually referred as fixed assets, but this statement is not correct today because fixed normally apply to something that lasts forever.  There is no really set in stone rule to classify a long term asset, but they are usually thought of to last for at least one year with repetitive use.

                      Assets that are not normally used in the everyday operations of a business should not be included in this category, and assets that are available for resale should be called inventory. Also, because they are expected to aid a business for longer periods of time, assets are separate from current assets and are used in the day to day operating cycle of an entity.  A very important part of long term assets are its carrying value, or the part of the price of an asset that hasn’t expired yet.It is also termed as the book value of an asset. If a long term asset just happens to lose part or all of its money producing potential before the end of its self life than the carrying value is reduced. Asset impairment occurs when the cash flow of the asset ends up being less then the carrying value. When the carrying value is decreased then it is counted as a loss.

                   Long term assets can be further broken down into three distinct items.  They are tangible assets, natural resources, and intangible assets.  A tangible asset is a type of long term asset that is physical like land, buildings, and equipment. Natural resources are a type of long term assets that is exchanged for economic value and can be obtained from the land, like gas, gold, and ore.  Last a intangible asset is an type of long term asset that doesn’t have any physical worth but have a value based on the rights that is granted to the owner.

                  An example of this is copyright, patent, and trademarks. The way that tangible assets loses value is through depreciation, the way that natural resources lose value is through depletion, and the way that intangible assets loses value is through amortization. Picking long term assets are a very concrete and intricate process. Before choosing a long term asset the management must decide how they will finance an asset one they have it.  Companies that generate enough profit can pay for long term assets from the cash flow of their day to day operations.  It’s very similar to how an individual pays for the loan of a car or the loan on mortgage. When companies want issue a long-term acquisition then they must do this through capital stock, bonds, or long-term notes. 

                     A nice place to analyze a company’s long term financing is through the financing activities in the statement of cash flow. When you are dealing with long-term assets, you must make sure that you are using the matching rule appropriately.The first thing you should do is calculate the total expense in the current accounting period. Second, you should see how much money is retained from the on the balance sheet to see if the asset will be helpful in the future. To solve these problems, there should be four important questions that you ask yourself. First, how is the value of the long term asset determined? Second, how much the depreciated value of the long term asset should be allocated against the revenues in the long run. Third, how much money on expenditures such as repairs is use? Last, how would the elimination of the long-term asset is recorded in the financial records? Because long-term assets are very confusing, they have many options to manage them.  It’s best to think of long term assets as something that will provide a particular need or operation over the years. 

                    For example, you shouldn’t think of a truck on how long it will run, but on how many miles it will drive. Another example is how much paper a photocopier machine will copy and how many people a hotel will shelter.  It’s also important to determine if a business will have the money to finance the asset in the future. Expenditure is known as the payment or a promise to make a payment in the future for an asset such as for a payment of a service or for a new laser printer you purchased for your business.  This information about Long Term Assets I got from my friend, who is working for Vision Infonet which is the leading provider of Medical Transcription, Medical Billing, and Electronic Medical Records. 

                     There are two types of expenditures, and they are capital expenditures and revenue expenditures.  A capital expenditure refers to the expenditure of a long term asset like land for example.  Revenue expenditure refers to the expenditure for something related to repair or maintenance such as the repair of a bull dozer for a construction company.

To make sure that financial statements are easy to understand, there is a set of rules and practices that is established, which is known as the generally accepted accounting principles (GAAP). This has been developed to provide a basic guideline for the rules of accounting because I think it’s fair to say that it can get confusing at times. There are a lot of differences to the meaning, so here is the best answer.  It’s the generally accepted accounting rules and procedures that are necessary to define accounting practice. Basically it’s a set of theories that accountants come to accept, and there are always controversies with some methods between accountants like any other field of study. Accounting is a discipline that is always growing and changing so it’s a good idea to keep up to date with all of the trends that are going on. It is possible that a financial statement can be altered to give a company a particular boost since the management prepares the financial statements of a company. So, that’s why the companies that sell their ownership to the public needs to get their financial statements audited by a public certified accountant.

  A certified public accountant (CPA) are licensed through the sate for the same exact reason lawyers and doctors are, so they and protect the public by providing the highest quality of professional service possible.The reason behind why CPAs are used is because they have no connection with the company and are independent. They have zero financing ties with the company. Some firms that employ a lot of certified public accountants include Deloitte & Touch, KPMG, and PricewaterhouseCoopers. An accountant with no strings attached or is independent commonly performs an audit, which is evaluating a companies financial statements, product, accounting systems, and records. 

  The main purpose of an audit is to make sure that the financial statements have been properly prepared according to the excepted accounting rules. Keep in mind; since accounting is not a exact science, it has room for interpretation according to the GAPP.  However, that doesn’t mean that the accountants report should contain substantial errors in the financial report, but more like that for the most report it is reliable for creditors to take a look at.  An accountant can make a decision only when the financial statements conform to the guidelines of GAAP.Because of their independence, creditors, banks, and investors tend to favor an auditor when they are deciding to invest in a company or give loans in the past. 

  The individualistic audit is an extremely crucial factor in the growth of financial markets internationally. Also, many organizations can directly or indirectly impact a GAAP. The Financial Accounting Standards Board (FASB) is the most critical body for the development and issuing of rules on accounting practice. The website I previously listed is extremely critical and you can attend seminars online for no cost, and also stay up to date with the rules.This independent body effects the Statements of Financial Accounting Standards. Next, the American Institute of Certified Public Accountants (AICPA) is the official professional association for certified accountants. It’s the largest CPA organization that exists in America and heavily influence accounting practices through its senior committees. 

  The Securities and Exchange Commission is the agency of the federal government that legally has the power to set and execute accounting practices for companies that sell security to the public, and it has a large impact on accounting practice.  Next, the governmental accounting standard (GASB) is critical for accounting because its main job is to issue the standards for accounting to the local and state governments in the United States.  However, a lot of these organizations are focused on the rules in regulations in the United States. There are a lot of businesses and accountants internationally so that’s why the International Accounting Standard Board (IASB) was formed.  It was approved by more then 25 international agencies. 

  The U.S laws that analyze the revenues for the cost of operating a business can also affect accounting practice. It’s no question that the major provider for income for the government comes from income tax. The income tax rules are heavily applies by the Internal Revenue Service (IRS). These rules actually cause a conflict sometimes with the accepted rules of accounting. So many businesses use accounting practices because it is a requirement by tax law.  Also, companies can use the rules of tax law to their advantage financially.  Accounting also has laws of conduct for profession, and one extremely important one is ethics.

§     A nice website dealing with the issues of ethics is.

It touches bases on questions that help determine if something is either right or wrong, and is based on moral decisions. So many people are faced with several ethical issues each day and, and some ethical actions could be on the range of illegal. If a business decides to use false or misleading advertising, or to bribe customers into giving them testimonials for a specific product, then they could be acting in an unethical manner.  The ethics of a company could also be a result of the employees so that’s why it’s always a good idea to run a background check of who you are hiring, whether it’s online or offline. 

  Professional ethics is the guidelines that apply to the conduct of individuals of a certain profession.The ethical actions of an individual is a decision similar to the ethical actions of a company.  As being a member of an organization, accountants have to take the responsibility not only to their customers and employers, but also to the general public to act in the greatest ethical way possible. Accountants are very good at following professional ethics because they are the second professional group, as having the largest ethical standards with clergy being the highest, no surprises about that one.  It is important for individuals who decide to become an accountant to have the highest levels of professionalism as possible. To enforce that its prestigious members are following the rules, the AICPA along with each state have accepted some codes of professional conduct that certified public accountants have to obey.  Some simple rules are being responsible to the people that depend on the trust of accountants, such as creditors and investors. When working with people the accountant must act with integrity which means that they are honest, and the individuals gain from the visit with the accountant. This information about Magic Accounting Rules I got from my friend, who is working for Vision Infonet which is the leading provider of Medical Transcription, Medical Billing, and Electronic Medical Records.