Accounting is more than just the “language of business.” It’s one of the vital information systems that feed the beating heart of a company.
For-profit businesses provide goods and services that are in demand, but the only way they stay in business is if they are making a profit, and in this competitive world, making a profit can be a challenge even on something that is in high demand. Accounting provides both internal and external stakeholders the information they need to make critical business decisions.
Financial Accounting Reports
By now, you should be able to recognize the basic financial statements and even have an idea about what goes into turning the massive amount of data collected by the accounting systems into financial statements:
- Income statement
- Statement of owner’s equity
- Balance sheet
- Statement of cash flows
If you try a quick search for the financial statements of a company you think is publicly traded—like General Electric, Ford Motor Company, or Walmart—you’ll likely be able to find these financial statements.
Go to the company’s website, and look for a section called “investor relations” or something similar. You’ll want to look for the annual report. Often, the annual report is 70–100 pages, but if you dig through a bit, you’ll find the actual financial statements along with a few dozen pages of disclosures (sometimes called Notes or Footnotes). It’s a lot of information, but it will give you a good idea of the complexity and extent of the financial accountant’s job. You can also look for the company’s 10-K, which typically contains the same information. The 10-K is the official form that a company uses to submit its official audited annual report to the SEC.
As you are looking through an annual report or Form 10-K, you may notice that the names of the reports are slightly different, but the content should be recognizable. The income statement may be called a Statement of Earnings, or a P&L (Profit and Loss), but it will still show revenues minus expenses and the resulting net income. The balance sheet may be called the Statement of Financial Position, but it will still show Assets being equal to Liabilities plus Equity. Also, since the company you research will most likely be a corporation, the statement of owner’s equity will probably be called a Statement of Stockholders’ Equity and there may also be a Statement of Retained Earnings and a Statement of Other Comprehensive Income.
Managerial Accounting Reports
What you won’t see are the managerial accounting reports like cost-volume-profit calculations, capital investment recommendations, and budgets—although in the Management’s Discussion and Analysis, you might see some of the managerial accountants’ influence in the projections and analyses. Remember, what you are looking at is the very end result of the accumulation, summarization, and verification of an almost unimaginable amount of data that would be meaningless if it was not condensed into information and communicated to the end-user (in this case, you).
From the day the business opens its doors with the first investment of capital, through lean years and robust ones, through mergers and product line changes, until the last dollar is made and the doors close at some far point in the future, the financial information gathered and reported on by accountants is the thread that ties it all together.
You’ve only just begun to learn all there is to know about accounting. In fact, you’ll never stop learning. There’s always something new around the corner. As business and commerce continue to change and develop, so does accounting.
