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Financial Statement Paper

Essay by   •  August 4, 2011  •  Essay  •  866 Words (4 Pages)  •  1,478 Views

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Financial Statement Paper

Businesses today need to run quickly, efficiently, and have smaller margin for error than ever before. To keep up with the fast paced world around them, companies must assure things run as smoothly as possible to have a chance at competing with their competitors. One of the biggest details that have to be correct is the company's accounting. Getting the numbers right isn't just important, it's the reason that a business can make money. Without proper accounting, it would not be possible to know how much money is being made or lost, what can be done to change these things for the better, or even where the money ends up. It is a part of everyday business, and will be as long as people continue to do business.

Accounting is utilized to record all of the receiving, sending, and all other transfers of money for a particular company. Think of it like the balancing of a checkbook for an entire business as opposed to a personal bank account. If transactions are not kept up with, money can easily fall through the cracks and companies could lose a substantial amount of it simply by not knowing what the numbers should look like. It would be impossible to know if someone was stealing money from the company, or if a company that business was done with had actually paid its bill correctly. Accounting is more than a necessity, it is impossible to run a business otherwise; without it, a business would certainly go under due to its own ignorance and lack of attention to its own detail.

Accounting has several basic assumptions, principles and constraints. They are revenue recognition principle, full disclosure principle, matching principle, cost principle, time period assumption, and monetary unit assumption, economic entity assumption, going concern assumption, conservatism and materiality (Accounting Coach, 2011).

All of these guidelines are very important elements in the world of everyday accounting, and must be considered in full when a company is keeping track of its transactions on a daily basis. While overwhelming when looking upon each of these guidelines at one time altogether, each and every one of them serve an important purpose in making accounting work for businesses and institutes in the world today. If all of these assumptions, principles and constraints are utilized properly, they can make all the difference needed to get accounting right.

There are also four basic financial statements in accounting, and all of them are interrelated with each other. The first of these is a profit and loss statement. This will help to illustrate a company's income, where they are making money, where it gets spent, and what their overall gain is by the time it is finished. The second is a balance sheet, which is basically as simple as it sounds. It will provide information on your assets, your positives, and liabilities, your negatives. This can then

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