Overview of Accounting

Accounting is a major part of business. No matter what kind of business it is, without good account skills the business has a good chance of failing. The basics of accounting are simple, and broken down into four major parts to understand, they are: A Balance sheet, Income Statement, Cash Flow Statement, and a Statement of Returned Earnings.

The basic understanding of accounting is broken up into two major categories, assets and liabilities. Assets are items in a company that are for the positive, these include cash, equipment, buildings and land are assets for a company. Liabilities are things that the company is responsible for; these can include wages, taxes, leases, and other short or long-term payables. Combining the assets and liabilities onto a paper for analysis or reporting is done on a balance sheet.

The balance sheet combines the assets and liabilities to show the book value of all items in a company, usually divided by a fiscal year, it is a snapshot of the current accounts. To analyze the balance sheet into greater detail, we can look at the Income Statement to see how the company is doing, profit wise. The income statement shows how the company's net revenue is turned into net income. This report is to show managers if there was a profit or not.

The cash flow statement breaks down the information even further. This takes the information on the balance sheet and calculates whether or not the company will have profits in the future and do things such as pay bills like the payroll.

Lastly is the statement of returned earnings. This statement takes information from the income statement and is an item on the balance sheet. After everything is paid and accounted for, this account will show the companies earnings over a specific period.

From those accounting statements, business managers and owners have to make informed and ethical decisions. Ethical decisions are the ability to pick between the right and wrong decision when booking and reporting accounts. If an account is booked wrong, this can lead to false feelings of investors, and the company can get into some serious trouble.

The account statements and reports mentioned above will help managers and business owners make the right decisions in a company. As long as there are no book keeping errors, and honest employees, there should be no problems. This was not the case for a company called Enron.

The energy company