Overview of Accounting Essay Example for Free

Overview of write up EssayThe audiences of financial pedagogys and managerial notifys include the sh areholders, employees, prospective employees, customers, suppliers, the government, the stock exchanges, investors, lenders and the public at large. What is important is that from each one audience has a different perspective in practice the financial statements and managerial reports. For example, a lender would like to know the leverage of the ac federation, if it has the capacity to service debt and if the loans to the confederacy would be well secured.There are several(prenominal) purposes served in preparing financial statements and managerial reports. The financial statements are designed to show its audience, the companies finances, that is how the social club got its finances, what it was employ for and where is it being currently used (Luecke, R. 2002). For this purpose there are four main financial statements that is the income statement, the bullion flow stat ement, the par all(prenominal)elism sheet and the statement of shareholders justice.In general an income statement has the purpose of showing how oft revenue a company earned in a period of time, the balance sheet shows the companys assets, liabilities and shareholders equity, the coin flow statement shows the inflow and outflow of cash and the purpose of the statement of shareholders equity is to show changes in the ownership of companys shareholders over a period of time. The temper of the income statement is in the form of a report that shows the costs and expenses that the parentagees incurs in order to earn its revenue.It gives the net fee of the company. The nature of balance is such that it provides point wise averation about the assets, liabilities and shareholders equity. The nature of a short letteres balance sheet is such that it is set up like the basic accounting equation. Usually on the go forth hand side the companies list the assets and on the right hand si de they list their liabilities with the shareholders interest at the bottom. This arrangement differs from country to country. For instance, in some countries the assets are listed on the right hand side.However, the basic nature of the balance sheet remains the same. The nature of the cash flow statement is such that it cigaret inform its audience if the business generated cash or not. The cash flow statement is a report that shows cash changes over time instead of exact currency amounts at a point in time. It exclusively uses and rearranges nurture from the balance sheet and income statement of the business. The most important report that is issued by the anxiety of a company is the annual report (Stittle, J. 2003).The nature of this report is such that it has detailed financial and business breeding required by law of the country in which the company is registered, modern annual reports have palatial pictures and stories that eulogize the companys performance in the past year. The information contained in this report can help the audience cod certified and ethical decisions. In the USA the SEC requires that the audited annual report be sent to every shareholder at the end of the year. In this the management comments about the future. stimulate 10-K required to be filled in the USA ha more detailed financial information.The companys financial performance is described in a section of the quarterly or annual report that is called Managements Discussion and Analysis of fiscal Condition and Results of Operation, In this section of the one-year Report the management describes its own understanding of the financial condition of the company. The management in this section of the annual or quarterly report describes what it understands of the current financial condition of the business. It also gives its view of the relevant trends and challenges that the business faces.This allows the audience to see the financial condition of the business from the pers pective of management and allows the audience to make informed and ethical decisions. In other words it provides the audiences the background that is required to study and understand the financial statements. Financial accounting information can be used in making informed and ethical business decisions. How? The income statement shows the earning per share, a calculation that tells you how much you as a shareholder would receive if the company distri stilled all its earnings.This allows you to make an invest/ non invest decision. Giving more information about the financial health of the company is the cash flow statement. It divides cash flow into flows from operating activities, investing activities and financing activities. This informs not only the investors but also the management, employees, suppliers and customers about the source of cash for the company and allows them to make better decisions. The footnotes of the reports give important information that helps make efficient and ethical decisions.The footnotes refer to stock options, pension plans, income taxes and important accounting policies and practices. For example, a company may be showing an inflated profit figure because its accounting practices have changed but reading the footnotes helps the audiences make better decisions and ethical decisions with regards to the company. To make ethical and informed decisions it is important to read between the lines of these reports. How is this consummate(a)? By doing ratio analysisCommonly the ratios that are examined are debt-to-equity ratio, inventory turnover ratio, operating security deposit ratio, P/E ratio and working capital. Consider this, well before the Enron scam exploded several investors were able to smell by examining the ratios that something was wrong with the company. They decided to sell off their stocks and avoided losses. To sum, the intention of the financial statements and management report is to inform the different stakeholders of a business. If these statements are carefully analyzed and understood they help these stakeholders make an informed and ethical decisions.