Answer to Question #286368 in Accounting for ast

Question

Brief Discussion Questions

a) Why is accounting considered a language of business? How is it related to management

process?

b) Discuss about the four basic financial statement (income statement, statement of owners’

equity, balance sheet, and statement of cash flows); comparing and contrasting their

differences in merchandising firms Vs. service providing entities

c) Discuss about the four finance functions (financial management decisions)

Answer 1

Solution:

a.). It is the language that managers use to communicate the firm's financial and economic information to external parties such as shareholders and creditors. various information of the business organization are expressed and presented through accounting statements.

It is related to the management process through management accounting, which is is the process of identifying, analyzing, interpreting, and communicating information to managers to help achieve business goals.

b.). Income statement refers to a statement that shows a company’s revenues and expenses during a particular period. It indicates how the revenues are transformed into net profit.

The statement of owner's equity is a financial statement that reports changes in the balance sheet's equity section during an accounting period. That is, it reports the events that increased or decreased stockholder equity during the fiscal period.

A balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time.

A statement of cash flows refers to a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.

c.). The four finance functions or decisions are as follows:

·        Capital budgeting decision – Deals with long-term investments and application of funds.

·        Financing decision – Deals with the capital structure of the firm and procurement of funds.

·        Dividend decision – Deals with the distribution of funds.

·        Working capital management decision – Deals with working capital and short-term financing.