accounting essay questions

accounting essay questions

The Importance of Accounting in Business

1. Introduction

A business starts with a certain amount of money that is available as opening capital amount. This capital is used to purchase assets by a business as per its requirements. Therefore, the value of total assets should be equal to the value of capital amount, which eventually will be equal to the total capital of the business. All transactions are recorded as they occur in the books of the company. The business will make a profit due to successful trading. Efforts will be made to increase business value as well as acquire additional short and long-term funds. As soon as the business uses these funds, such as to repay debt or to acquire additional assets or sell, business profit will be recognized as an achievement as efforts are made to avoid trading losses.

Accounting is essential to the management of a business. Without accounting, managers could not easily determine how large of a profit the company was making or determine how to proceed and which areas of the business were strong or weak. Since the purpose of business is to generate a profit, maintaining suitable accounting records is essential. Accounting transactions can be initiated at any time, whether at the beginning of the year, prior to incorporation, after commencement of business or any time throughout a calendar year. The choice depends on the requirements of the business and when the owners/partnership wish to prepare their financial report (accounts). The general objective of accounting is to provide necessary business owners with reliable, relevant and timely information to guide strategic decisions. This shows why accounting is important for businesses.

2. The Role of Accounting in Business

In the stock market, competent accounting is a tool for assessing the effectiveness of financial transactions by checking the mops to satisfy the marketing objectives of the business. Most importantly, employees must be able to use preventive measures to prevent loss or damage or to simplify errors or fraud. In the control and monitoring of assets, doing accounting in a small business is a good foundation for large companies. Of course, repetitive accounting must be accurate and meet accounting standards and principles in order to equate small business accounting reports and business data with small business policies. It’s clear that companies can use accounting to make decisions on their long-term strategy for successful business growth through the power of business. In addition to the established demand of the financial statements, financial accounting is an obligation required by law and regulations.

The importance of accounting in business has led to the emergence of a large number of accounting firms for professional services. One of the primary services provided by all accounting firms is accounting. Firms can record financial transactions, summarize them and key financial documents and statements using accounting. For the operation of large companies or businesses, accounting can be done as a division. While accounting as a department, it can provide services for more business activities. We can say that it is the department that creates the soul of the business. The accounting department explains financial data clearly through the financial statement. Financial ratios are meaningful, and analysis is numbered. This can be concluded in order to express the success or failure of the business in conducting long-term financial reports to those who have rights or stakeholders of the business.

3. Key Accounting Principles and Concepts

Materiality is a concept that divides economic elements into relevant and irrelevant by determining the presence or absence of a transaction. It can be said that evidentness is present when economic elements of a transaction and disposals fall into this judgment. Relevant can be said to be relevant. It’s not controlled in a legal sense, but in conventions (company-specific guidelines), information on transposing less than 5% of the outsourcing company’s total assets and earnings, and this can be said to be a non-reversible standard. Compliance with/suitability for specific business economic intelligence, own reality and specific purpose, and congruence between disposal and solvent display and transposing.

Accruals are earning-related elements of financial statements and are part of three elements: assets (stake of asset in the company or what the company enjoys), revenue (value of today’s earnings), and expense (use of today’s earnings). Accruals and cash don’t necessarily show differences, but in some cases, their difference can become extreme by questioning management’s integrity, and the quality of reports can be vastly decreased. Accruals can cloud the visibility of the report. The degree of a report’s fogging is a keyword to understanding, but as members (stakeholders) don’t possess the ability to grasp the degree at the time of usage, they must ascertain control over the stock price concealed therein. Three methods to attain this can be: more grasping of the report basis concept, using another method, and demanding a clear report.

4. Challenges and Ethical Considerations in Accounting

Accountants, whether they are external or internal, play a crucial role as part of a company. Accounting produces necessary financial information to facilitate internal cooperation, particularly in the form of performance reports, to monitor whether the company’s goals have been achieved or not. It is crucial to enable audit activities, especially through the production of financial statements, to be analyzed and identify any errors or incidents that may occur within a company. Proper accounting enables the company to move in the right direction and improve its management. However, there are several accounting problems in companies, and they seem to be getting worse. The first difficulty is finding accounting experts. The second challenge is accounting malpractices within companies, which requires a comprehensive understanding. Therefore, these challenges keep increasing year by year, and as a possible solution, an extreme philosophy of accounting education is being considered.

Maintaining ethics in accounting is an important aspect. The Sarbanes-Oxley Act has been passed to make rules about financial reporting, particularly about financial reports of publicly traded companies. However, many public companies encounter fraud problems. For example, WorldCom, the biggest bankruptcy in its era, and Enron, the seventh largest company in America, are both infamous for their fraud problems. Firms, brokers, fund managers, and the press have also played an important role. Ethical behavior within organizations is not easy to maintain. Many companies have suggested implementing codes of ethics, but the practice often violates the code of conduct. Despite these challenges, an ethical organization could be a path to attract high-quality accounting professionals.

5. Conclusion

The people should know what suits them, what is favorable for the market, and what business activities would bring benefits. This can be satisfied and cost individual heads. As per the cost, they can go for a business that gives profit but not for loss. They take the investment by checking the profit and loss only. They can gain profit if they decide and choose an appropriate thing as per the expenditure and the income level. The accounting and the knowledge of accounting are essential. Some people are in business without any knowledge of accounting and they face losses. Hence, accounting is most important for business. It will provide what, where, and how the business gains or losses are affected. Understanding the concept of self-earnings and the earnings from the money invested will be provided by accounting.

Hence, the people should know about how they are spending and allocating their funds to gain and profit more next time within the different business sectors. The spending applied must be attentive in nature, both internally and externally. The suppressing of funds should be eradicated through various means, whether compulsory or needful, or in a planned way as prescribed by the business experts in that area. The profit and loss statements can be adjusted to a favorable level with the help of accounting. The decision needs to be taken when there is a loss in the business.