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Respond in 175 words

In the world of business, the reporting of finances is of the utmost importance. The financial reports allow both inside and outside stakeholders a view into a company’s financial health. Many different statements are processed in an attempt to give a clear picture of a company’s income, expenses, liabilities and assets. These numbers must be presented truthfully and accurately. The presentation of the statements is not the end of the reporting process. Executive summaries are also given to help the non-financial manager get a clear view of what the numbers represent.

In the video Accuracy of Accounting, author Paul Kimmel, PHD, CPA, gives insight on how management sometimes influence the presentation of the final numbers. Sometimes there are times where mangers want to present an increase in numbers and other times they want to present a decrease in the numbers.

Dr. Kimmel holds that managers will sometimes increase the numbers for differing reasons. One of those reasons is if their bonuses are tied to the economic results of the company. The more favorable the numbers the larger the bonus. Another incentive to inflate the numbers is to ensure that the company meets the terms of loan covenants. Loan covenants lay out the expectations of the lender to the borrower. In some cases, should those covenants (agreements) not be met, the lender has a right to claim that the loan immediately be paid in full. The inflation of stock prices is another reason managers may inflate the numbers.

Managers also may have various reasons to have their accountants to decrease their numbers. Contrary to popular belief, higher numbers are not always of a benefit to a company. For instance, if a company does not want to give its core employees raises, they can present numbers that show they are not in a position to provide the increases.

For these and other reasons various systems of checks and balances have been put in to place to ensure that the clearest, most reliable financial picture is submitted on behalf of a company.


respond in 175 words

The topic I decided to present is the four financial statements. These financial statements include the income statement, retained earnings statement, balance sheet, and statement of cash flows. All statements are necessary to show the company’s assets, expenses, and revenues within a given time frame. The information that is shown on the income statement includes revenues and expenses for a given period. The retained earnings statement shows the amount of the company’s income that was distributed to the shareholders of the company through dividends and the total that the company kept using for future expansions of the business. The balance sheet shows the company’s assets and liabilities, which is basically what the company owns and what it owes. The statement of cash flow shows the amount where cash was acquired from and how the cash was used within a period. For example, on the income statement, if a company makes 15,000 dollars in revenue from sales, the revenue will be added to the income statement and all expenses will be subtracted from the revenue. This will give you the company’s net income for the given time frame. On the retained earnings statement, you will need to provide the retained earnings prior to statement which is added to the net income minus the dividends that were distributed to the shareholders. This number will give you the total retained earning for the period. In the balance sheet, the information that is included will balance out both the assets and liabilities. The assets will include cash, supplies, insurance, and accounts receivable. Information that is included in liabilities are service revenue unearned, retained earnings, common stock, and the amounts payable. The statement of cash flow includes receipts, payments, cash obtained, cash used, and dividends to find the total of both cash at the beginning and the end of the period.

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