first student

Good afternoon,

1) Why is accounting important?

• Accounting is vital to running a business successfully.
• Accounting practices are a numerical history of a business. 
• It tracks the company's performance internally and externally.
• It shows how the company is doing financially ( i.e., revenue, expenses, profit, and net worth
• It allows companies to plan for the future and helps to make better financial decisions.

Who Governs accounting?

The Finacial Accounting Board ( FASB) ( a non-government, private company) governs accounting practices. FASB also established GAAP ( Generally Accepted Accounting Principles). In addition, the SEC ( Security Exchange Commission) has the authority to set and enforce accounting standards.

How consistent is accounting among companies in the same industry?

Reporting should be consistent, but with a few inconsistencies like estimated values vs. actual values, depreciation estimates can sometimes be interpreted differently. Financial statements should be able to be compared to other companies; using the same accounting principles help companies compare apples to apples as far as financial statements. 

Why do we care as a society about accounting rules?

Integrity, Ethical behavior, disclosure and transparency, codes, and guidelines must be in place so all investors have complete confidence in the investment and financial teams. These behaviors are crucial in ensuring all companies operate ethically and transparently. Principles and rules ensure the company is managing the resources properly so investors, leaders, donors, and employees can make educated decisions to invest in the company.

What happens when a company does not follow legitimate accounting practices?

Not following legitimate accounting practices is a crime. Once unethical practices have been uncovered, the financial team could receive substantial penalties, fines, jail time, loss of credentials, license to do business, or practice revoked. Also, if the word gets out, clients will leave and go to a more respectable, ethical company.

Explain the value of financial ratios and why they are important. 

Financial Ratio Analysis provides a financially sound, analytically robust, and widely accepted approach for evaluating many critical aspects of a company's economic performance. Here are 4 key questions to ask.

• How liquid is the company?
• How effective is the company in generating profits on its assets?
• How is the company financing its assets?
• Are the shareholder's returns adequate?

How do companies, investors, and analysts use them?

Investors and investment brokers use analysis to:

• Evaluate alternative investments risks versus returns
• Identify trends as indicators of a company's future performance
• Identify opportunities and threats in future investments

Banks use analysis to:

• Evaluate loans to companies and individuals
• Manage client's investment portfolios
• Establish interest rates ( high and low risks)

Government regulatory agencies use analysis to:

• Evaluate new public stock issues (SEC)
• Conduct government audits ( GAO)
• Establish rates for government contracts (DCAA)

Companies use analysis for:

• Management and Financial planning
• Credit management ( trade credit, who gets it, and on what terms)
• Shareholder reporting
• Evaluating potential mergers and acquisitions
• Compare competitors results
• Identify operational issues
• assuring compliance with loan covenants

The two basic approaches to successful financial ratios are trend analysis and comparative analysis. Trend analysis is the most powerful technique. A comparative analysis compares two different companies' financial statements for accuracy. Financial ratio analysis provides a financially sound, analytically robust, and widely accepted approach to evaluating critical aspects of a company's economic performance.

Lori

second student  Itzel 

Why is accounting important? 

Accounting is important because it communicates to the organization’s top management and shareholders the financial history of the organization from its beginning to the present and that information provides a snapshot of the financial future (Grundvig, A. n.d.)

Who governs accounting? 

The Financial Accounting Standards Board (FSAB) and Securities and Exchanges Commission (SEC) ensures that organizations adheres to GAAP (Ross, S., 2022)

How consistent is accounting among companies in the same industry? 

It is very consistent among companies in the same industry as the principles are standard as they follow GAAP principles (Accountng.com, 2022)

Can show an example of where accounting rules may be applied differently and yet consistent with GAAP? 

Company X may do their accounting reports every quarter while company Y prepare their reports every month.  Both companies comply with the principle of regularity, but one has established monthly and the other quarterly.

Why do we care as a society about accounting rules? 

As a society we care about accounting rules because is a way to know that organization are being trustful of how much they make and that consumers are not being taken advantage of.

Show by way of example, what happens when a company does not follow legitimate accounting practices.

When an organization does not follow legitimate accounting practices, the result can be theft.  If a supermarket does not have record of sales by each cashier, it may happen that a cashier is stealing money and there is no record available to compare sales from one day to other, or from one week to the next, thus resulting in the supermarket to increase expenses with less income.

Explain the value of financial ratios and why they are important? 

Financial ratios provide the necessary information to analyze the current finances with past information.  They are important because the information helps organization make unofficial financial decisions (Routh, Brian, 2011)

How are they used by companies, by investors, by analysts?

Companies, investors, and analysts use all ratios available to review and analyze all them together to compare where the company was, where is it, and where it will be.  It is also used to compare companies within the same industry or market to determine their positioning in the market.  Investors use the ratios to decide where to invest. (Wilkins, G., 2022)

Accounting.com (2022).  What is GAAP?  https://www.accounting.com/resources/gaap/

Grundvig, A. (n.d.). A Course in Accounting For Non-Accountants.  Bean Counting.  https://www.a-systems.net/part1.htm

Ross, S. (2022).  Who Enfoces GAAP?  https://www.investopedia.com/ask/answers/020915/who-enforces-gaap.asp

Routh, B. (2011).  What is Financial Statement Analysis? [Video] YouTube.  https://www.youtube.com/watch?v=8DmChanpSmw

Wilkins, G. (2022).  6 Basic Financial Ratios and What They Reveal.  https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx