Accounting
Catherine Gamero
4/26/12
Week One Discussion Questions
• What are the four basic financial statements? What is the primary purpose of each of the four basic financial statements? In your opinion, which financial statement is the most important? Explain why.
The four basic financial statements are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. The balance sheet shows what it owes and owns. Income statement shows how the company did during a period of time both revenues and expenses. Statement of retained earnings indicates how much previous income was distributed to yourself and other business owners and what was kept for future growth. Statement of cash flows shows where the business obtained cash during a period of time and how the money was used. In my opinion the most important of the four would be the balance sheet because it is important to know what you have and what you owe at all times.
• In your opinion, how are financial statements useful to managers and employees? How are financial statements useful to investors and creditors? Explain.
Financial statements are useful to both managers and employees because as a manager you need to know if there is sufficient cash and to see what they can afford. As an employee it is important to know what is going on in the business and not feel like you’re kept in the dark. As a creditor financial statements are important because you will need to know if a debt will be able to be paid on time. As an investor you want to make sure that profits are coming in and earnings are satisfactory.
• In your opinion, why do accountants debit asset accounts to increase them but credit liability accounts to increase them? Why do accountants debit expenses to increase them but credit revenues to increase them?
In my opinion the reason for this is that accounting equations must always balance and the two sides must always be equal. Each transaction has a dual
4/26/12
Week One Discussion Questions
• What are the four basic financial statements? What is the primary purpose of each of the four basic financial statements? In your opinion, which financial statement is the most important? Explain why.
The four basic financial statements are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. The balance sheet shows what it owes and owns. Income statement shows how the company did during a period of time both revenues and expenses. Statement of retained earnings indicates how much previous income was distributed to yourself and other business owners and what was kept for future growth. Statement of cash flows shows where the business obtained cash during a period of time and how the money was used. In my opinion the most important of the four would be the balance sheet because it is important to know what you have and what you owe at all times.
• In your opinion, how are financial statements useful to managers and employees? How are financial statements useful to investors and creditors? Explain.
Financial statements are useful to both managers and employees because as a manager you need to know if there is sufficient cash and to see what they can afford. As an employee it is important to know what is going on in the business and not feel like you’re kept in the dark. As a creditor financial statements are important because you will need to know if a debt will be able to be paid on time. As an investor you want to make sure that profits are coming in and earnings are satisfactory.
• In your opinion, why do accountants debit asset accounts to increase them but credit liability accounts to increase them? Why do accountants debit expenses to increase them but credit revenues to increase them?
In my opinion the reason for this is that accounting equations must always balance and the two sides must always be equal. Each transaction has a dual