Answer to Question #286379 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

a)Because accounting is a reflection of the business processes taking place in the company.

b)These different financial statements reflect:

• the profit and loss statement shows the profitability and profitability of the business, reflects the financial activities of the company (other income and expenses)
• balans is a frozen picture of the state of the property and the sources of the formation of the company's property
• the cash flow statement is a summary of cash inflows and outflows by type of activity: operating, financial and investment
• the capital change report is a document reflecting the movement of equity funds, as well as containing information about the amount of retained earnings (loss) and the share of the company's shares.

c)There are mainly 4 Finance Functions - Investment Decision, Financial Decision, Dividend Decision and Liquidity Decision. These 4 functions allow you to manage your business. So the investment solution is a reasonable allocation of capital to long-term assets. The financial solution is to maintain an optimal combination of equity and debt capital, known as the capital structure of the firm. The decision on dividends is an understanding of the direction of using net profit: either dividends to shareholders or use in business. And the decision on liquidity is working with current assets in order to increase solvency.