November 3, 2014
Tom Myers, Facilitator
Accounting is a systematic approach to identifying, recording and communicating the various financially impactful events of a business to interested external and internal users of such information (Kimmel, Weygandt, & Kieso, 2011). The field of accounting is typically divided into financial and managerial accounting. The purpose of financial accounting is to report on a company’s financial condition to external users of this information, including investors, creditors, and regulatory agencies. On the other hand, management accounting is primarily focused on the reporting of information for internal use by the company’s management. Businesses utilize the financial information gained through accounting to make informed decisions aimed at promoting their long-term survival and success. Financial reporting takes the form of structured reports that are designed to be easy to understand. The four primary financial statements are the income statement, retained earnings statement, balance sheet, and statement of cash flows. The income statement reports the operational success or failure of a company for a specified period of time (Kimmel, et al., 2011). The information is grouped into three categories, revenues, expenses, and net income. Revenue is the inflow of capital that is brought into the company through its business activities, such as the sale of a product or service. Expenses, the opposite of revenues, are the costs businesses incur through normal operations in order to earn revenues. Net income, also referred to as the bottom line, is the profit earned by a company through its business operations. It is calculated by taking the difference between the revenues earned and the total expenses over a specific period of time (Kimmel, et al., 2011). The income statement serves as an indicator of the profitability of an organization over a...
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