Accounting Case

Use FARS to identify what standard-setters have said as to the superiority of accrual accounting relative to a cash basis. Purpose of accounting

Accounting is the process by which companies compile the information needed to determine their financial status. Accounting provides a means to monitor the financial numbers of the company. Accounting "identifies, records, and communicates the economic events of an organization to interested users" (Weygandt, 2008, p. 4). Each company determines which economic events apply to their company. Publicly traded companies must adhere to the Generally Accepted Accounting Procedures established by the Federal Accounting Standards Board. The procedures provide guidance and direction on the proper reporting of company financial information. It is imperative for the accountant to following proper procedures in maintaining the company's financial information and preparing the financial statements.

Financial Statements

Accountants prepare financial statements to provide information to individuals both within and outside the company. "The main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance to external parties such as investors, creditors, and tax authorities" (QuickMBA, 2010, para 1). Executives, managers, and employees are also very interested in how successful the company is at meeting its financial objectives. Company personnel may lose their job if the business is not meeting its financial goals. The four basic financial statements used in accounting are the balance sheet, income statement, statement of retained earnings (or owner's equity), and cash flow statement. These reports are the culmination of the accountant's posting of financial transactions and the information contained in them should be relevant, understandable, accurate, and timely.