While every financial statement is equally important for a business, they play different roles while running and interacting with a business. Income statements provide information about a company’s ability to generate profit. It also provides information concerning the sales a company has made at the close of the period and the expenses a company has incurred on various operations. The income statement may also be reviewed over several time periods to determine the trends in the operations of a company hence providing grounds to forecast future results.
The balance sheet is provides information about the status of the company at the date of release. This information comes handy in determining the liquidity, debt and funding position of a company. It is the basis for various liquidity ratios.
Lastly, the purpose of the statement of cash gives a breakdown of cash receipts and disbursements along a variety of categories. It supplements the income statements since it does not always agree with the revenues and expenses given by the income statement. It also helps to determine the level of sales of a company.
Working together, the financial statements play a variety of purposes. First, they provide grounds for making credit decisions. Lenders look at the three statements to determine if a company is able to repay loans and to determine how much they can lend to the company. Second, investment decisions are made using financial decisions. Investors use financial statements to determine if they should invest into the company and to determine how much they wish to invest per share. Business acquirers use these statements to determine how much they can offer to purchase a business.
The most important statements for a company are the balance sheets. Balance sheets provide an idea of the financial position of a company. They also show how much a company owes lenders in debts and how much money that a company has in possession. This gives an idea of how a company is performing and helps project hoe it is going to perform in the future.
Differences between Accountants and CPAs
Many countries have adopted a method of qualifying certified public accountants. A CPA is qualified differently from other accountants. According to the Pennsylvania Institute of Certified Public Accountants (2010), a for a graduate accountant to qualify to become CPA, he undergoes more training, participates in attest activity and gets at least two years of professional experience.
CPAs may be employed in a wide range of industries including education, non-profit organizations, and public accounting. CPAs are engaged for various roles. They roles range from tax, personal financial planning, accounting auditing, technology consulting, accounting and business evaluation. CPAs can play a variety of roles in a company and are considered amongst the most important members of a company’s financial advisory board.
on the other hand need not meet the experience and education requirements that
are required of CPAs. Their only requirement is a graduate degree in accounting.
The role of accountants is limited to book keeping and maintaining general
accounts. They are not eligible to perform some complex roles like financial
analysis which are performed by CPAs (Pennsylvania Institute of Certified
Public Accountants 2010).
Service and merchandising businesses
The business venture I would start would be a service company which would focus on offering accounting services for other companies. Among those services that I would offer are HR administration, which would comprise of payroll management, recruiting, and benefits and workforce compensation payments, account processing, and financial services.
Merchandising and Service Companies have various differences in their charts of accounts. First, service companies rake in revenues when a service is offered to a consumer. Mostly, consumers are billed on future date rather than promptly. Revenue is recognised on the date of sale for merchandising companies. Secondly, for service industries, when operating costs are subtracted from revenues, net income is obtained. On the other hand, gross profit is obtained when merchandising cost is subtracted from revenue in merchandising companies. When operating expenses are subtracted from the gross profit, net income is obtained (McIntosh, 2012).
Automating the Accounting Process and Internal Fraud control
There has been an increasing need to increase the effectiveness of every company. One way in which a company can become more effective is by automating its accounting system. An automated accounting system most often is faster than the manual system. There are fewer errors than with the automated system. The system may also be used for other purposes other than making the system more effective. Most importantly, it can be used to minimize fraud within a company (Coderre, & Warner, 1999).
the company can integrate a fraud detection system into its system to minimize
cases of fraud. Second, with the records populated in one area, it is easier to
access and analyze data for errors. Finally, the company could minimize cases
of fraud by notifying the company as soon as irregularities are identified (Coderre,
& Warner, 1999).
Pennsylvania Institute of Certified Public Accountants (2010). CPAs vs. Accountants: Is there a difference? Retrieved from: http://www.picpa.org/Content/Files/Documents/Resources/Presentations%20and%20Brochures/6501-CPAvsAccountant_portrait.pdf
Bragg, S., (2012). Accounting Tools: What is the purpose of financial statements? Retrieved from: com/questions-and-answers/what-is-the-purpose-of-financial-statements.html”>http://www.accountingtools.com/questions-and-answers/what-is-the-purpose-of-financial-statements.html
McIntosh, K. A. (2012). Accounting Cycle for Service Companies vs. Merchandising Companies | Chron.com. Retrieved from com/accounting-cycle-service-companies-vs-merchandising-companies-20128.html”>http://smallbusiness.chron.com/accounting-cycle-service-companies-vs-merchandising-companies-20128.html
Coderre, D., & Warner, P. D. (1999). Computer-Assisted Techniques for Fraud Detection. CPA Journal, 69(8), 5
Colby, E., (n.d.). Fraud and internal controls, Part 3: Internal fraud schemes
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