Eugene Babienko, bachelor’s degree student
Mykhailo Lulko, senior lector
National University of Life and Environmental Sciences of Ukraine
Accounting
Accounting
is the systematic development and analysis of information about the economic
affairs of an organization. This information may be used:
o
by the organization's managers. It
used to help them plan and control the organization’s operations;
o
by owners, regulatory bodies or
legislative. It used to help them make decisions as to its future, and appraise
the organization’s performance;
o
by owners, suppliers, lenders,
employees, and others. Used to help them decide, how much time or money to
devote to the organization;
o
by governmental bodies. Used to
determine, how much tax the organization must pay;
o
by customers to determine the price
to be paid, when contracts call for cost-based payments.
Accounting
provides information for all these purposes through the maintenance of files of
data, analysis and interpretation of these data, and the preparation of various
kinds of reports. Most accounting information is historical. That is, the
accountant observes the things that the organization does, records their effects,
and prepares reports summarizing what has been recorded; the rest consists of
forecasts and plans for current and future periods.
Accounting
information can be developed for some kinds of organization. Not only for
privately owned. One branch of accounting deals with the economic operations of
entire nations.
Among
the most common accounting reports are those sent to investors and others
outside the management group. The reports most likely to go to investors are
called financial statements, and their preparation is the province of the
branch of accounting known as financial accounting. Three financial statements
will be discussed: the balance sheet, the income statement , and the statement of cash flows.
The
balance sheet. It describes the resources that are
under a company’s control on a specified date and indicates where these
resources have come from. It consists of 3 major sections:
1)
the assets: valuable rights owned by
the company;
2)
the liabilities: the funds that have
been provided by outside lenders and other creditors in exchange for the
company's promise to make payments or to provide services in the future;
3)
the owner’s equity: the funds that
have been provided by the company’s owners or on their behalf.
The
list of assets shows the forms in which the company’s resources are lodged. The
lists of liabilities and the owner’s equity indicate where these same resources
have come from. The balance sheet shows the company’s resources from two points
of view, and the following relationship must always exist.
This
same identity is also expressed in another way: total assets minus total
liabilities equals total owner's equity. In this form, the equation emphasizes
that the owner’s equity in the company is always equal to the net assets. Any
increase in one will inevitably be accompanied by an increase in the other, and
the only way to increase the owner’s equity is to increase the net assets.
Assets
are ordinarily subdivided into current assets and noncurrent assets. The former
include cash, amounts receivable from customers, inventories, and other assets
that are expected to be consumed or can be readily converted into cash during
the next operating cycle (production, sale, and collection). Noncurrent assets
may include noncurrent receivables, fixed assets (such as land and buildings),
and long-term investments.
The
income statement. The company uses its
assets to produce goods and services. Its success depends on whether it is wise
or lucky in the assets it chooses to hold and in the ways it uses these assets to
produce goods and services.
The
company’s success is measured by the amount of profit it earns. That is, the
growth or decline in its stock of assets from all sources other than
contributions or withdrawals of funds by owners and creditors. Net income is
the accountant’s term for the amount of profit that is reported for a
particular time period.
The
company’s income statement for a period of time shows how the net income for
that period was derived.
Net
income summarizes all the gains and losses recognized during the period,
including both the results of the company's normal, day-by-day activities and
any other events. If net income is negative, it is referred to as a net loss.
The
income statement is usually accompanied by a statement that shows how the
company's retained earnings have changed during the year. Net income increases
retained earnings; net operating loss or the distribution of cash dividends
reduces it.
The
statement of cash flows. Companies also prepare
a third financial statement, the statement of cash flows. Cash flows result
from three major groups of activities:
1)
operating activities;
2)
investing activities;
3)
financing activities.
Cash
from operations is not the same as net income. For one thing, not all revenues
are collected in cash. Revenue is usually recorded when a customer receives
merchandise and either pays for it or promises to pay the company in the
future. Cash from operating activities, on the other hand, reflects the actual
cash collected, not the inflow of accounts receivable. Similarly, an expense may be recorded without an actual cash payment.
The
purpose of the statement of cash flows is to throw light on management’s use of
the financial resources available to it and to help the users of the statements
to evaluate the company's liquidity, its ability to pay its bills when they
come due.
References
1. http://works.tarefer.ru/13/100458/index.html
2. http://5ballov.qip.ru/referats/preview/99494/?referat-accounting