{"id":556,"date":"2015-04-21T22:53:12","date_gmt":"2015-04-21T22:53:12","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterybusiness1xngcxmaster\/?post_type=chapter&p=556"},"modified":"2017-03-31T18:27:09","modified_gmt":"2017-03-31T18:27:09","slug":"putting-it-together-15","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/chapter\/putting-it-together-15\/","title":{"raw":"Putting It Together: Accounting and Finance","rendered":"Putting It Together: Accounting and Finance"},"content":{"raw":"

Synthesis\"Photo<\/a><\/h2>\r\nWhether or not this chapter convinced you to pursue a career in accounting, by now you have acquired a working knowledge of some of the basics of financial accounting, as well as the importance of accuracy in the presentation of financial information to stakeholders. Whether you are running\u00a0a bake sale or a multinational corporation, understanding the relationship between revenues and expenses is critical for success. The misdeeds of corporate executives and their accountants have peppered the news for the last decade; but, the vast majority of accountants and their clients follow a strict code of ethics and observe the laws and guidance provided by Congress, FASB, and AICPA. One of the best ways to\u00a0protect yourself and your business against becoming involved in a financial scandal is to have a solid working knowledge of basic accounting principles so that you can recognize and correct any irregularities.\r\n

Summary<\/h2>\r\n

Accounting in Business<\/h3>\r\nIn short, accounting is the language of business\u2014all business. Accounting represents all of the financial transactions of a business in a format that can be interpreted and understood\u00a0by both internal and external stakeholders.\r\n

Key Financial Statements<\/h3>\r\nWhen businesses present their financial condition to external stakeholders, taxing authorities, investors, and the general public, the most common format for this information is one of four\u00a0key financial statements. These four<\/span>\u00a0statements are the Balance Sheet, Income Statement, Statement of Owners Equity, and Statement of Cash Flows. These four\u00a0statements, although repr<\/span>esenting different facets of the company's finances, are all interconnected and create a birds-eye view of the company's financial position.\r\n

The Break-Even Point<\/h3>\r\nBusinesses, both large and small, are concerned with determining the point at which their revenues exceed their expenses and they begin to make a profit. The point at which revenue equals expenses (and profit is therefore $0) is called the\u00a0break-even point.\r\n

Financial Ratios<\/strong><\/h3>\r\nFinancial ratios allow business to represent the relationships between components of their financial operations as ratios. Financial ratios are used to measure a firm's financial health in four areas:\u00a0liquidity, \u00a0long-term solvency, profitability tests, and the market. \u00a0These ratios can be used to compare the company's performance across periods (months, quarters, years) or to similar companies within the same industry.\r\n

Ethical Practices in Accounting<\/h3>\r\nCertified public accountants (CPAs) and certified management accountants (CMAs) are bound to the Code of Ethics established by their licensing bodies. Generally accepted accounting principles (GAAP) and the Financial Accounting Standards Board (FASB) have established practices designed to ensure that the financial status of a company is \"fairly and accurately\" presented. Legislation such as the Sarbanes-Oxley Act has been passed by Congress to strengthen the emphasis on ethical practices in accountancy. \u00a0Although stories of unethical conduct by companies such\u00a0as Enron, WorldCom, and HP have made headlines, the overwhelming majority of individuals\u00a0working as internal or external accountants follow\u00a0the code of ethics and work hard to ensure that the information provided to stakeholders is fair and accurate.","rendered":"

Synthesis\"Photo<\/a><\/h2>\n

Whether or not this chapter convinced you to pursue a career in accounting, by now you have acquired a working knowledge of some of the basics of financial accounting, as well as the importance of accuracy in the presentation of financial information to stakeholders. Whether you are running\u00a0a bake sale or a multinational corporation, understanding the relationship between revenues and expenses is critical for success. The misdeeds of corporate executives and their accountants have peppered the news for the last decade; but, the vast majority of accountants and their clients follow a strict code of ethics and observe the laws and guidance provided by Congress, FASB, and AICPA. One of the best ways to\u00a0protect yourself and your business against becoming involved in a financial scandal is to have a solid working knowledge of basic accounting principles so that you can recognize and correct any irregularities.<\/p>\n

Summary<\/h2>\n

Accounting in Business<\/h3>\n

In short, accounting is the language of business\u2014all business. Accounting represents all of the financial transactions of a business in a format that can be interpreted and understood\u00a0by both internal and external stakeholders.<\/p>\n

Key Financial Statements<\/h3>\n

When businesses present their financial condition to external stakeholders, taxing authorities, investors, and the general public, the most common format for this information is one of four\u00a0key financial statements. These four<\/span>\u00a0statements are the Balance Sheet, Income Statement, Statement of Owners Equity, and Statement of Cash Flows. These four\u00a0statements, although repr<\/span>esenting different facets of the company’s finances, are all interconnected and create a birds-eye view of the company’s financial position.<\/p>\n

The Break-Even Point<\/h3>\n

Businesses, both large and small, are concerned with determining the point at which their revenues exceed their expenses and they begin to make a profit. The point at which revenue equals expenses (and profit is therefore $0) is called the\u00a0break-even point.<\/p>\n

Financial Ratios<\/strong><\/h3>\n

Financial ratios allow business to represent the relationships between components of their financial operations as ratios. Financial ratios are used to measure a firm’s financial health in four areas:\u00a0liquidity, \u00a0long-term solvency, profitability tests, and the market. \u00a0These ratios can be used to compare the company’s performance across periods (months, quarters, years) or to similar companies within the same industry.<\/p>\n

Ethical Practices in Accounting<\/h3>\n

Certified public accountants (CPAs) and certified management accountants (CMAs) are bound to the Code of Ethics established by their licensing bodies. Generally accepted accounting principles (GAAP) and the Financial Accounting Standards Board (FASB) have established practices designed to ensure that the financial status of a company is “fairly and accurately” presented. Legislation such as the Sarbanes-Oxley Act has been passed by Congress to strengthen the emphasis on ethical practices in accountancy. \u00a0Although stories of unethical conduct by companies such\u00a0as Enron, WorldCom, and HP have made headlines, the overwhelming majority of individuals\u00a0working as internal or external accountants follow\u00a0the code of ethics and work hard to ensure that the information provided to stakeholders is fair and accurate.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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