Accountant Naples FL Financial Accounting
Financial accounting is a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet explains Accountant Naples FL. Companies issue financial statements on a routine schedule. The statements are considered external because they are given to people outside of the company, with the primary recipients being owners/stockholders, as well as certain lenders. If a corporation’s stock is publicly traded, however, its financial statements (and other financial reporting) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts. Financial accounting strives to answer two basic questions: how did the business do last year, and what did the business own and owe at the end of the year? The answers to these questions are summarized in two basic statements, the income statement and the balance sheet. If you have even a passing knowledge of business and economics, answering these questions might not seem that difficult. In fact, determining a firm’s economic performance and condition often is very difficult. Unfortunately, financial statements rarely are able to give completely definitive and precise answers to what seem to be simple economic questions. Why would this be so? Accounting’s measurement problems derive primarily from three factors. It is difficult to pin down exact criteria for measuring economic performance and economic condition. Second, accounting uses money as its fundamental measurement unit, and money’s unit value is not stable over time. Third, accounting rule makers have to allow for the fact that business managers often are motivated to distort economic reality rather than reflect it accurately.
Looking Beyond the Numbers
An income statement may tell you if a business did well or badly in the most recent period, but it does not reveal why a business performed as it did. Success or failure in business generally results from a combination of many factors, but the two key variables are management skill and luck. Management skill is needed to insure that the right products and services are sold at the right price. Such skill is also needed to insure that customers and clients are satisfied with the products and services sold express Accountant Naples FL. Products and services also need to be marketed effectively. Costs must be controlled, employee morale maintained. While management skill is an important determinant of success or failure, good and bad luck almost always play an important role in all human affairs. Good luck can allow a less than efficient business to make a profit despite its management failings. On the other hand, with bad luck a company with great management can still suffer losses. Factoring the contributions of management competence and luck in determining the firm’s reported operating results in one period is a difficult proposition. On the other hand, the ability to make profits year in and year out indicates that luck is not the only factor at work.
Value of Company
It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves. Because external financial statements are used by a variety of people in a variety of ways, financial accounting has common rules known as accounting standards and as generally accepted accounting principles (GAAP). In the U.S., the Financial Accounting Standards Board (FASB) is the organization that develops the accounting standards and principles. Corporations whose stock is publicly traded must also comply with the reporting requirements of the Securities and Exchange Commission (SEC), an agency of the U.S. government. The aim of accounting is to provide useful and reliable information about businesses and non-profits. Financial accounting seeks to determine a firm’s economic performance and its condition. Did it make a profit or loss last year? What assets and liabilities did the business have at the end of the year? In accounting the unit of measurement is money. Money is a medium of exchange that has value only to the extent that it can be traded for goods and services. But, money is not a stable unit of measurement, because its exchange value varies with time. What one dollar buys today in goods and services is almost never the same as what that same dollar purchased last year or will purchase two years from now states Accountant Naples FL.
If financial accounting is going to be useful, a company’s reports need to be credible, easy to understand, and comparable to those of other companies. To this end, financial accounting follows a set of common rules known as accounting standards or generally accepted accounting principles (GAAP, pronounced “gap”). GAAP is based on the fundamental principles of accounting-concepts such as cost principle, matching principle, full disclosure, going concern, economic entity, conservatism, relevance, and reliability. GAAP, however, is not static states Accountant Naples FL. It includes some very complex standards that were issued in response to some very complicated business transactions. GAAP also addresses accounting practices that may be unique to particular industries, such as utility, banking, and insurance. Often these practices are a response to changes in government regulations of the industry. Financial accounting consists of the rules and procedures used to measure the economic performance and condition of a business firm. The most widely used rules are Generally Accepted Accounting Principles (GAAP).Generally Accepted Accounting Principles (GAAP) were not handed down to the accounting profession from God through some Old Testament prophet. Rather, the accounting profession has delegated to a series of committees the responsibility for promulgating specific rules. Currently, the responsibility falls to the Financial Accounting Standards Board (FASB).
Accountant Naples FL Financial Accounting