I.
Financial statements serve an important role, as they allow an organization to demonstrate its financial health and viability to both internal and external interests. They are used for measuring performance for internal individuals as well as allowing outside investors to accurately judge the state of the organization. Balance Sheets, income statements, and statements of cash flow serve roles in measuring certain aspects of company performance. Balance sheets measure the assets, liabilities and ownership equity within a period of time in the organization; income statements demonstrate the income, expenses, and profits that a company achieves, while a cash flow analysis demonstrates how cash is managed within the organization in terms of operations, investments, and financial activities.
In my view, the income statement serves as the most important form of financial statements, as it demonstrates whether an organization is profiting from its activities in the long-term. This is important, as while the company may maintain a positive balance sheet, income statements allow to identify which aspects of business operations are causing losses within an organization and what can be done to eliminate the loss from operations as a whole. Most importantly, the statement allows for the easy identification of whether the company is profitable or not.
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"Accounting Questions Answered".
II.
Within organizations, there is a significant difference between accountants and certified public accountants, as while these terms are similar they do not refer to a similar level of knowledge. Legally, there are no requirements to practice as an accountant; as such a task can be assigned by companies based on a needs basis. In fact, no degree requirements or skills tests are needed, as any individual can be trained in basic accounting tasks within a workplace setting. As such, this differs from certified public accountants, as there are educational and examination requirements in order to practice as one within a state. CPA’s are upheld to a strict code of conduct and are required to have certain levels of experience before being able to practice.
Accountants are important, as they provide for a standardized means of measuring organizational performance and determine the ability of organizations to meet their financial needs. This is critical, as without a uniform system, it would be difficult to measure performance between organizations and compare within the financial system. Furthermore, accountants create an environment where there are controls on transactions as a means of preventing fraud or other illegal activities within the organization.
III.
If I were to undergo a private venture, I would create a service company, as it would allow for greater profitability and scalability of organizational growth. This is due to the fact that services have higher profit margins than merchandising and do not require the retail space needed for client interactions. In terms of financial statements, service companies do not need to account for delivery of goods, deal with LIFO/FIFO differences, and manage inventory. Services are much more straightforward and have ‘simpler’ accounting methods as there is no physical inventory or turnover to account for. Simply, the cost of providing the service is typically directly tied to the number of labor hours and the necessary expenses need to allow for service provision.
As a whole, accounting for merchandising companies requires a higher degree of knowledge on the subject and the use of inventory systems that properly account for cost within the process. As a whole, this requires significant more controls and varies based on regulations and use of particular accounting systems (GAAP/IFRS). Overall, merchandising does not feature the same significant differences and involves a much more straightforward logic in terms of its applications.
IV.
Automating accounting methods is inevitable, as it will allow for increased productivity and accountability without the significant cost inflicted by accounting departments. Within services, much of the system can be automated and require little human interactions as there are no particular complex regulations to deal with. This would be accomplished through automated systems that records and categorizes spending and revenue based within the organization and would allow for adequate internal reporting. While this would not be outside of human intervention, the staff needed would be much lower, as this would significantly decrease the staff levels needed for managerial accounting.
In order to prevent fraud within an organization, controls within accounting systems must be implemented that would deter such attempts. These would focus on mandatory vacation within an organization, as it would require different staff to undergo their duties within a period of a year. Furthermore, this can be accomplished through a system of checks and balances where no single individual is responsible for financial transactions. Third, monthly reconciliation of agency bank accounts through a neutral third party would spot any irregularities within the agency accounts and prevent an individual from controlling the flow of cash within their area of responsibility.
