Accounting Class Participation
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wk1_dq2.docx·
· Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by DONALD DENNIS
Aug 19, 2014, 8:31 AM
Financial statements are crucial documents with details of what the company earns, how they earn, as well as what and how the company spends its money.
The income statement shows figures of profitability of that given company over a period of time. The statements usually include detailed sections of revenue, gains in addition to their expenses and losses. If revenue and gains are greater than expenses and losses, the income statement will show a profit for the company
The balance sheet provides information about the company's financial situation over a period of time. This information is used to make certain business decisions for future projects, plans or general business operations. The balance sheet includes more information than that of the income statement. This information included the company's assets, liabilities, in addition to the stockholders' equity (their investment). The assets should always equal liabilities, plus the stockholders investment(s).
· Comment on Aug 19, 2014, 6:52 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 19, 2014, 6:52 PM
Good! The income statement tells us what we've earned, our sales and expenses, and in the balance sheet we see our assets and liabilities, and owner's equity. The equity will also increase if we have net income and other investments from our owners. Our income statement tells us a lot especially when we compare months over time - we can see trends of expenses and revenues; and analyze what has changed.
Class: Any questions?
· Comment on Aug 20, 2014, 9:13 AM
2 Other Statements
Aug 20, 2014, 9:13 AM
Other than the income and balance sheets, there are two other documents that are just as important. More about these will be mentioned in this week and class.
Owners equity statement - This shows and explains changes in the retained earnings. Retained earnings are on the balance sheet and will change due to incomes or dividends.
Cash flow statement - A company could be successful, yet lack cash to pay its bills. This will show sources of cash and where cash is being used.
· Comment on Aug 20, 2014, 11:36 AM
posted by Mark Pollack
Aug 20, 2014, 11:36 AM
Donald,
You bring up a great point about the cash flow statement. I was a small business owner in a retail strip center. I cant tell you how many conversations I had with fellow business owners that were struggling to pay there bills; however they showed a profit. The company used the money in various ways other than appropriately such as product that did not sell, decorations, "write-offs" for their home. I do believe that many small businesses fail because they are underfunded and do not use simple accounting principles to determine its health.
Mark
· Comment on Aug 21, 2014, 10:09 AM
posted by DONALD DENNIS
Aug 21, 2014, 10:09 AM
I currently work for a small business. 2 owners, and 2 employees. The owners live off the business account, so nothing is separate. Years ago it wasn't like that, but times got tough and the additional money flows dried up. When your business check account is directly tied to your personal spending and bills, some things will suffer.
· Comment on Aug 23, 2014, 10:04 PM
posted by Linda Moore
Aug 23, 2014, 10:04 PM
Donald - that's true; when times get tough, this is the tendency. However, you are technically "stealing" from your business and this just drains the business of its cash. Eventually, the business suffers because it cannot replenish inventory, make repairs, add to fixed assets, etc. It is always advisable to keep business and personal assets separate.
· Comment on Aug 24, 2014, 4:20 PM
posted by Mark Pollack
Aug 24, 2014, 4:20 PM
Hi Linda and Donald,
We had a good friend who lost his business by using funds. Times were not tough, actually money was quickly flowing in to the organization. However, the company bought his cars, his boat, his "business" trips and as you can see...when the business needed capital it wasn't available. I am unsure how you can "legally" account for these things; however, I am aware of companies doing it.
· Comment on Aug 22, 2014, 11:08 PM
posted by Linda Moore
Aug 22, 2014, 11:08 PM
Mark - that is so true! When I first moved to Florida, the area was near Daytona. There were several small businesses opening up, but the new business owners were not careful; they had cash and would think they were doing fine, and would take the cash out and use it for personal things as you mentioned. The one thing that people do wrong is to forget to reinvest the cash back into the business. Also, Sales or profits on paper does not necessarily mean you have cash! Extending credit to the wrong people is also a common mistake, and your example of purchasing too much product that does not sell. You don't want to find yourself with a warehouse full of outdated products!
· Comment on Aug 23, 2014, 8:33 AM
posted by DONALD DENNIS
Aug 23, 2014, 8:33 AM
I can see how this could be a problem when working with individuals and business in regards to an "on account" basis. I see this a lot in the service industry I work in and have worked in with numerous companies. However with the company I work for now, more times than not we only allow this to happen with long time clients or friends. However, because we are a struggling business, the owners may overlook some of the basics of doing business to draw in business and make us a convenience to our customers, our company tends to have too much money floating out there.
· Comment on Aug 23, 2014, 12:59 PM
posted by SARA HOMSI
Aug 23, 2014, 12:59 PM
Hi Donald, You bring up a valid point. However, the text talked about creditors using these types of financial statements in order to determine the likeliness that an organization could pay back it's debts and also to examine the past performance of the organization. This is no new theory to me/us as we can apply it to our personal lives. Before a bank is going to lend you money for a new car or mortgage, they are going to run a credit check on you, look at your income, etc. A history of late payments or something like bankruptcy may make it harder for one to get the loan. Or, it may result in having to pay a higher interest rate. At the end of the day, looking at a person or organization's past financial situation will help lenders make a better decision.
Sara
· Comment on Aug 23, 2014, 10:18 PM
posted by Linda Moore
Aug 23, 2014, 10:18 PM
Donald - this can become a problem, but at the same time, you want to attract customers. We especially want to offer more easy terms, in order for clients/customers to prefer to do business with us. This is fine, unless these same customers won't pay their bills! We can become in trouble if we find ourselves with a lot of uncollectible receivables. It is always a balancing act, to attract business, and to also be somewhat cautious when extending credit.
· Comment on Aug 22, 2014, 1:29 AM
posted by Linda Moore
Aug 22, 2014, 1:29 AM
Donald - yes, definitely! The Owner's Equity is important, because we want to see the accumulation of what net income we have retained over the life of our business. Also, we can see if the owners have added or taken out any withdrawals from the company as well.
The Cash Flow is very important, because we want to see what cash has been spent, and where the cash inflows have come from. This is vital for the survival of the business; Sales themselves don't necessarily mean cash, and of course, we can find out we are spending more than we make!
Good Post~!
· Comment on Aug 21, 2014, 6:20 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by ANDREW WAREING
Aug 21, 2014, 6:20 AM
From what I understand there is significant latitude in interpretation of the Generally Accepted Accounting Principles (GAAP) as defined by the FASB. Can this lead to intentional and unintentional misrepresentation of an organizations health on the financial statement?
Most executives will have their compensation directly tied to the financial performance of the company and the auditors are also compensated by the companies that they audit.
Perhaps I am too cynical but it would seem that despite the best efforts of the SEC, investors still need to be cautious in basing investment strategies on financial statements alone.
· Comment on Aug 21, 2014, 6:32 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 21, 2014, 6:32 PM
Andrew,
I agree with you in that investors should do more research on companies other than only viewing their financial statements before coming up with their plan to invest in the company. I would like to believe that many investors are well educated and have an understanding of the business world. I have learned in previous courses that businesses follow a business cycle and that cycle typically leads to a recession. The recession is followed by growth and the company will peak out again, and then start to have a bit of a recession.
This type of business cycle may better describe the economy as a whole, but my point is this. Investors can look at financial statements for many months or even years. They can look at balance sheets and all of the other financial statements to gain a better understanding of how the business operates and the investor will be able to pin point where the company is at in their business cycle. This will help them base their investment strategies on more than just the financial statements alone. There is more research involved.
At the end of the day, purchasing stocks in a company has a risk factor involved, the spectrum or risk is very large.
· Comment on Aug 22, 2014, 11:21 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 11:21 PM
Keith - that is so true; and we can research as much as possible but still have unknowns in regard to economic changes or other unknowns. Weather can change things, and for example, disasters such as the gulf oil leak creates issues no one could have foreseen.
Class: what other examples of unforeseen occurrences can you think of?
· Comment on Aug 23, 2014, 8:56 AM
posted by DONALD DENNIS
Aug 23, 2014, 8:56 AM
In regards to the unforeseen occurrences that could happen at any time, you mentioned the oil spill, or spills that have happened a few times over the years.
As for a couple local geography based occurrences, my examples are as followed...
#1 I grew up in Illinois, so for one there are a lot of tornadoes and vicious winters.
#2 I am in Arizona now so flash flooding and fires are common. In addition to these, theft is a lot higher here than in Illinois (mainly vehicles)
· Comment on Aug 23, 2014, 1:09 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by SARA HOMSI
Aug 23, 2014, 1:09 PM
Last summer, the small beach town that I live in was hit with a hurricane that wiped out our beaches and many of the businesses that reside there. Many of the "ma and pa" shops that were down there couldn't recover from the hurricane.
In addition to natural disasters, an unforeseen occurance can include unemployment and recessions. Having just completed an economics class prior to this one, we talked heavily on the 4 phases of the business cycle and how things have to fluctuate quite a bit. One the business cycles, a recession, is a period of large unemployment and inflation. In these types of tough times, consumption is likely to decrease which often trickles down to a decrease in sales/revenues for businesses. This can be considered an unforeseen occurance as it makes it difficult for organizations to pay back debt.
· Comment on Aug 24, 2014, 6:16 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JASON YORGENSEN
Aug 24, 2014, 6:16 PM
Class,
This year I noticed the effect that weather can have on a business. It can make a huge impact because it can deter customers from coming into the business. The other unexpected changes can happen when congress is involved. I know that after the bank bailout and mortgage issues regulations were changed that hindered how banks make money. This brought up the questions about how banks are not out for anyone but themselves and harmed the business. When laws are changed it can change the way people and businesses can make money.
Jason Yorgensen
· Comment on Aug 24, 2014, 7:28 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 24, 2014, 7:28 PM
In the area I live in there are multiple unforeseen circumstances. I live in the middle of Washington State where we have all weather conditions present throughout the seasons of the year. During the winter we may have such a harsh winter that businesses in town will not receive their shipments of supplies to be able to sell their customers. This impacts restaurants, bars, boutiques, and even the university. If we do not have enough snow in the winter and rain in the spring, the farmers will be affected. There will not be enough rainfall to fill the reservoir in the county that supply the irrigation for all of the farming.
· Comment on Aug 22, 2014, 1:37 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 1:37 AM
Andrew - very important comments indeed! I also wonder where the line is drawn, because we as a company pay our own auditors; and that always seemed a conflict in the first place. The main issue also is the way commissions and calculations are based. The sales people, and management, are very motivated to "overstate" earnings, because their compensation is based on these earnings levels.
Class: What is your opinion on this Post?
· Comment on Aug 22, 2014, 5:33 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JASON YORGENSEN
Aug 22, 2014, 5:33 PM
Class,
I think that auditors should always be indepandant of the company. I believe there should be people in the company that routinely check things to make sure they are in compliance. This is a necessary evil of owning the company making sure everything and everyone is doing the correct thing. Although I think that every company should be routinely audited to ensure that there is an unbiased view of the business. This can show other businesses that they are doing things the right way because they are willing to have someone externally look at the company. It also adds credibility to the business when they use those numbers to help talk about the business.
Jason Yorgensen
· Comment on Aug 22, 2014, 11:23 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 11:23 PM
Jason - I agree! If the business is doing things right, then they should have no problem opening up to an unbiased outside auditor. Then, the users of the statements will have no problem in trusting them. Their confidence level will increase dramatically.
· Comment on Aug 24, 2014, 7:41 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 24, 2014, 7:41 PM
Jason,
I agree that it is a great tool to use external auditors! Having internal checks and balances is also another great tool that can be utilized to reduce the frequency of using external auditors. Some large companies hire auditors to come in an check their books for the reasons you've provided. Some companies may not be large enough to be able to afford to hire a third party company, so the checks and balances will help.
I know a few small business owners that perform their own accounting and they do not have the funds available to hire third party companies. So what they do is keep their books on their own and they have one person in charge of invoicing, another person in charge of paying wages, and another person in charge of receiving payments. This helps keep all of the accounting responsibilities off of one persons plate and helps ensure the company is not being taken advantage of or being stolen from.
· Comment on Aug 23, 2014, 9:04 AM
posted by DONALD DENNIS
Aug 23, 2014, 9:04 AM
As an employee I would want to overstate earnings, but as a company wouldn't you want to understate your earnings, or just not lie! Can we not take example from many companies who lie...such as Enron!
To find the current health of the company (for purposes of investors, employees and so forth), overstating your earnings will make your business look better. Think about stock trade. The better the business is doing, the more likely the stock will be higher. When the stock rises, that is also additional sources of income made by us investors. If you understate your earnings, stocks will sell, lowering your company's total worth.
· Comment on Aug 24, 2014, 9:31 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JEREMY ECKLIN
Aug 24, 2014, 9:31 PM
While I agree that the accounting principles and regulatory commissions overseeing the principles have loose requirements and the system of checks and balances has the potential for corruption, the financing system is based on the faithful representation of financial statements. I am as cynical as the next person about the loose financial statement principles, but if every company was an Enron, the system would have crashed long ago. The system is certainly not perfect, but with the implementation of the Sarbanes-Oxley Act of 2002, the good faith representation and relevant information assumption has to be trusted. Further, while there are incentives for corruption, if most companies were to unintentionally or intentionally misrepresent their data on a regular basis, there would be zero trust in the system and financing would cease. As a result, most information is probably relatively accurate because if enough companies do not act in good faith, the system crashes. Last, while there are incentives to misrepresent the data, for profitable companies, the potential ramifications of misrepresenting the financial health of the company is just not worth the risk if the company is profitable.
· Comment on Aug 23, 2014, 12:53 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by SARA HOMSI
Aug 23, 2014, 12:53 PM
When you say "we can see trends of expenses and revenues; and analyze what has changed," the first thought I had was what types of events or occurrences can affect a positive change in expense and revenues.? I realize that there are many things that can affect such numbers and financial statements but a few that I popped into my mind within my current organization includes mergers and acquisitions. My company grows largely by acquiring other companies. Since our latest acquisition, our numbers and financial performance has increased significantly. The acquisition allows the organization to reach an extended channel of sales, thus increasing sales revenues.
· Comment on Aug 23, 2014, 10:31 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 23, 2014, 10:31 PM
Sara - that is a good example. In your business, we want to grow our channels of sales. In this way we can hugely increase our sales levels, and we can also take sales away from our competitors. We have to be careful not to spend so much on our investment as to get into trouble, however. Our expenses can also be reviewed, from month to month. We can see changes, and when there are increases, we can examine the details to understand the reasons why. Our efforts can be to reduce costs, or to increase sales, in order to raise our profit margin.
Class: What else can we do to add to profits?
· Comment on Aug 24, 2014, 5:56 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by SARA HOMSI
Aug 24, 2014, 5:56 PM
Other things that an organization can do to add to profits is to reduce cost. Less cost typically results in higher margins and better profits. Costs can be cut several ways. In my organization, we have several new product development projects at any given time, but we also have cost reduction projects going on at the same time. Sometimes changing manufacturing material(s), shipping from different warehouses, slight redesign of component parts, etc can really bring down cost of a product, but selling at the same price, you're going to make more on each product sold. You can also reduce operating expenses by hiring more efficient workers, automating certain process/practices, turning lights off when room(s) aren't in use.
· Comment on Aug 24, 2014, 7:49 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 24, 2014, 7:49 PM
Another way a company can increase profits is by increasing the productivity of its employees. Sometimes there is a cost associated with increasing the productivity of employees, but, generally that benefits of a more productive employee out weigh the costs.
Employees may become more productive through incentive programs and bonus structures. Employees become more productive through on the job training. It may cost money to train employees, but after they've become more productive, their inputs into the company will generate more profits.
Motivating employees by setting goals will help them be more productive and will increase profits. Employees who are striving to reach goals will work harder and will feel rewarded just by reaching the goal. Others who are not as easily motivated by reaching goals can be brought on board by using goals, incentives, and bonuses together.
· Comment on Aug 20, 2014, 3:41 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JASON YORGENSEN
Aug 20, 2014, 3:41 PM
Class,
A balance sheet will show a number of things about the business. It shows what assets the business has as well as liabilities. It will also show a person what the shareholder equity is at any given day. The assets can include any business property that is owned, equipment, or cash in the bank. The liabilities will include any debts that the business has incurred either to suppliers or for loans.
The income statement will show how much money the company made. The statement can be used in a monthly, weekly, or yearly capacity. The statement will have what money was brought into the company and it subtracts the expenses that the company had for the time frame.
Each one of these tools can be used in different ways. They can be used if potentional investors want to purchase or invest in a business. These two sheets will give insight to how the company is preforming. If the numbers are consistently in the red the company may have a hard time finding investors. These can also be used by banks when the company wants to get a loan. The bank will look to see if the company can repay the loan based on what is coming into the business. Also it can determine the health of the business from the balance sheets.
Jason Yorgensen
· Comment on Aug 22, 2014, 1:52 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 1:52 AM
Jason - yes and we can look at these statements in comparison to the time period prior, or over the last year, to see trends. This is especially useful in the income statement, where we can compare certain expenses over time. We can review our payroll expense, or our insurance expense; to see if we have increases; then can research the reasons why. Also, we can look at sales revenue, and if this is growing larger, or we are losing momentum on our sales.
· Comment on Aug 23, 2014, 11:58 PM
Aug 23, 2014, 11:58 PM
· Comment on Aug 19, 2014, 8:08 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Mark Pollack
Aug 19, 2014, 8:08 PM
Both are vital tools for businesses to see the financial health of the company. The income statement is used to detail company expenses and revenue from services or products. This provides a business leader, investor, owner or other stakeholder the ability to see profitability, revenue growth year over year, and analyze expenses over sales.
A balance sheet is a similar tool but is used to define assets, liabilities, and external incomes as compared to revenue. This information gives the stakeholders a clear picture of the net worth of the organization. I used balance sheet reports in my business to analyze my companies revenues and assets, depreciation, as compared to my gross income.
Both tools are used to help key leaders make business decisions such as: new employees, downsizing, creating/demolishing departments, and the like.
· Comment on Aug 22, 2014, 2:00 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 2:00 AM
Mark - The balance sheet is very useful as you've discussed. We can see our relationship between debts and assets, to know how healthy the business is, and an estimate of its longevity. We also want to see what assets we have and how much they have as accumulated depreciation. If they are all nearly depreciated, you can plan on the fact that we will have to replace some assets soon!
· Comment on Aug 24, 2014, 4:22 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Mark Pollack
Aug 24, 2014, 4:22 PM
Thank you Linda for the reply. A few years ago we had a meeting with our accountant and we had depreciated a number of large items such as our X-Ray machine. It was funny to hear from her that we needed to go buy more equipment for the hospital we owned for the write offs and depreciation. That does put businesses in a tough spot potentially. The company was doing well, however, we were not in a position to spend more money or more percisely , that amount of money.
· Comment on Aug 19, 2014, 9:08 PM
posted by patricia surber
Aug 19, 2014, 9:08 PM
An income statement is a financial statement that helps businesses communicate with their users. The income statement reports revenues and expenses to locate the success or failure of a business in a certain time frame. The revenues and expenses are the company's operations. The income statement will date the ending of the time frame so the business knows the period of time of the results of the operations. The revenue is always recorded first on the income statement then the expenses next. The expenses are deducted from the revenues to determine the net income or net loss made in that certain period of time. The company wants to know the net income so they can predict future net income. Investors will look at the income statement to determine if they want to buy or sell their stock in that company. A balance sheet is another financial statement that helps businesses communicate with their users. Companies use a balance sheet to report assets and claims of assets such as creditors (liabilities) and owners (stockholders' equity) claims. On the balance sheet, the assets must match the claims of assets. The company uses the balance sheet to determine if they have the cash on hand to meet their cash needs.
· Comment on Aug 21, 2014, 6:12 PM
posted by JASON YORGENSEN
Aug 21, 2014, 6:12 PM
Class,
I agree with you that each are vital tools for leaders in a business. They are tools that will help leaders make key decisions. These tools are also important tools for investors and people outside of the company. Investors will use these tools to decide if the company is a good investment or something that is on the decline. Investors will also look at multiple businesses within the same industry to make an evaluation of the industry as a whole. These statements can show if its just one particular company struggling or if it is a complete change in the industry. It is important that businesses and leaders keep accurate records so everyone can understand how the business is operating.
Jason Yorgensen
· Comment on Aug 23, 2014, 7:49 AM
posted by patricia surber
Aug 23, 2014, 7:49 AM
I agree that these financial statements are vital tools. The balance sheet is also called the statement of financial position. The balance sheet lists what a company owns and what it owes to determine the company's financial standing. The income statement is also called the profit and loss statement which provides information about a company's profitability during a certain time frame. The purpose of these documents is to give decision makers the ability to look at the current situation of the company and make changes if needed. Creditors look at these documents to determine if they will loan this company money or not. Stock investors will look at these statements to determine if this company is a good investment or not.
· Comment on Aug 22, 2014, 2:26 AM
posted by Linda Moore
Aug 22, 2014, 2:26 AM
Patricia - we want to prepare our income statement to show the most important details of our business. For example, if we are a sales or telemarketing company, telephone expense may be more detailed than in another business; and advertising will also be a key expense item to be looked at. Outside investors or lenders will want to see the statements to make their judgment as to what to do. Our stockholders will want to decide also if they have a good investment, or want to sell their stock. Of course the IRS will be interested in our income information as well!
· Comment on Aug 23, 2014, 7:36 AM
posted by patricia surber
Aug 23, 2014, 7:36 AM
Great point. I work for a telemarketing firm. We are contracted by DirecTV to call their customers for them. We have many employees who work about 37.5 hours a week. Within that time they are making a lot of calls. We are open Sunday through Saturday. Saturday and Sunday we are open 7am to 3pm. Monday through Friday we are open until 10am to 6pm. The income statement would show the amount of calls that were made during a certain time frame. The income statement would have the amount of time for each call in seconds, minutes, and hours. I am very interested to see what the income statement would look like. I wonder what other detailed would be on the income statement.
· Comment on Aug 23, 2014, 10:38 PM
posted by Linda Moore
Aug 23, 2014, 10:38 PM
Patricia - what we see in our balance sheet is all of our assets, our liabilities and owner's equity. We can see where our assets have come from; owner's investing capital, or from accounts payable. Those looking at the data can then tell if the business is healthy or not. If too much is made up of debt, it is not good for the business.
· Comment on Aug 24, 2014, 5:43 PM
posted by patricia surber
Aug 24, 2014, 5:43 PM
Thank you. Assets are things that a business owns. The assets are resources of a business owns through transactions with economic value in the form of cash. The assets can be costs that have been paid advance such as advertising, insurance, legal fees, and rent. Asset accounts are reported on the balance sheet such as cash on hand, investments, accounts receivable, inventory, supplies, land, buildings, equipment, goodwill, and bond issue costs. The liabilities listed on the balance sheet are obligations of a business. The liabilities are the amounts owed to creditors and are the source of the company's assets. Liabilities also are amounts of future services that have been received in advance but not paid for yet. Most of the liability accounts have the word "payable" in it such as wages payable, salaries payable, accounts payable, and interest payable. The owner's equity is also a source of a business assets. On the balance sheet the assets minus the liabilities equals the owner's equity. The examples of owner's equity would be common stock, preferred stock, and retained earnings; just to mention a few.
· Comment on Aug 20, 2014, 5:45 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by ANDREW WAREING
Aug 20, 2014, 5:45 AM
Balance sheets and income statements are financial statements that allow organizations to get an understanding of the health of the company. A balance sheet shows the company's assets and liabilities at any given moment in time. An income statement shows the financial state of the company over a given reporting period. Balance sheets and income statements are used by the company itself to guide good business decisions but are also used by investors and banks to track investment risk and opportunities.
Myers, C. (2014). The Purpose of a Balance Sheet and Income Statement. Retrieved from http://yourbusiness.azcentral.com/purpose-balance-sheet-income-statement-3520.html
· Comment on Aug 22, 2014, 11:30 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 11:30 PM
Andrew - The banking industry has to be able to review a company to know if they can loan them money, if they will be able to collect the payments.. Investors want to know if their money will bring them good returns. Is the risk worth it? These are the questions we want to be able to answer when reading the financial statements.
· Comment on Aug 21, 2014, 12:48 PM
posted by ANNA WEBB
Aug 21, 2014, 12:48 PM
Balance sheets are financial statements detailing the relationship between business assets (cash, receivables, inventory, supplies, etc.) and liabilities (payables) on a specific date, whereas an income statement lists revenues and expenses for a certain time period, such as a month. Income statements are valuable because a company can predict future performance by analyzing past performance.
· Comment on Aug 21, 2014, 6:15 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 21, 2014, 6:15 PM
The purpose of the income statement is to show companies revenues and expenses. The income statement will compare the revenues generated and the expenses paid out to show if a company is operating in a way that is providing a new income or a net loss. If the revenue is greater than expenses then a company is operating in a way that generates net income. If expenses are greater than revenue then a company is operating in a way that generates a net loss.
The income statement is a statement that current investors and potential investors will study to determine what they would like to do with the corporations stocks. The income statements of a company can provide insight to investors as to how the company is operating. An investor may not want to purchase stocks in a company if they have a history of operating at a net loss. If the companies net income statements show a trend of operating at a net income, the investor may feel more inclined to purchase stock in that company.
· Comment on Aug 21, 2014, 6:23 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KEITH MAJORS
Aug 21, 2014, 6:23 PM
The purpose of the balance sheet is to show what a company has as assets and what a company holds as liabilities and as stockholder's equity. The balance sheet should always follow the basic accounting equation of Assets = Liabilities + Stockholder's Equity. The balance sheet can show a companies position at a specific point in time.
The balance sheet is what loan institutions will look at when a company is attempting to gain financing for improving or expanding their business. Loan agents or creditors will be able to analyze the balance sheet and determine the companies' ability to pay of their debts. Creditors compare the assets, liabilities, and stockholder's equity, which is presented in the balance sheet, to make their decisions.
· Comment on Aug 22, 2014, 2:36 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Linda Moore
Aug 22, 2014, 2:36 AM
Keith - looking at the balance sheet tells us where we stand at one particular point in time; the "balances" of our assets liabilities and owner's equity. Each of these balances are an accumulation of what we've done so far in our business, no matter how old of a business we have! For example, our assets, our cash balance, our accounts payable.
Class: What else would a balance sheet be useful for?
· Comment on Aug 22, 2014, 6:37 AM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by ANDREW WAREING
Aug 22, 2014, 6:37 AM
Balance sheets are useful to potential investors and regulatory agencies in ascertaining the financial health of an organization. These external agencies are limited to the public data that companies have to publish and the balance sheet allows them to make solid investment decisions. They also provide data for the management teams to apply analytical tools to identify trends and relationships based on current and historical data.
· Comment on Aug 22, 2014, 5:36 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JASON YORGENSEN
Aug 22, 2014, 5:36 PM
Class,
Balance sheets can also be useful to show what areas of the business are strong and what need improvement. Specifically looking at assets of the business. If the business has a lot of income but not a lot of assets this could help leadership understand what they need to purchase. Also it can do the opposite if lower level managers are spending a lot in expenses it can help find places to cut. Balance sheets are something that are vital to help leaders understand how there business runs daily.
Jason Yorgensen
· Comment on Aug 24, 2014, 9:19 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JEREMY ECKLIN
Aug 24, 2014, 9:19 PM
A balance sheet is useful to evaluate the various aspects of a company. For example, since assets are listed under major categories, an internal user can better understand where the value of the company is located. Further, looking at the assets section can show how assets are balanced, whether the company has a high cash amount, or a high accounts receivable amount. If a company regularly operates with low cash amounts and high accounts receivable, one might be concerned about the company's ability to manage operations because of high receivables not correlating into cash in a timely manner. Another useful section is the liability and stockholder's equity section. Evaluating the liabilities of a company compared to their assets helps determine profitability. Further, the amount of stockholder's equity in a company would interest potential stockholders. Last, the kind of debt, whether short term or long term generated and owed by the company would interest investors. The balance sheet contains a great deal of useful information to potential investors and internal managers about the overall financial health of the company.
· Comment on Aug 23, 2014, 12:48 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by SARA HOMSI
Aug 23, 2014, 12:48 PM
According to this week's readings...
The purpose of the income statement is to show how successfully (or unsuccessfully) your business performed during a period of time by reporting your revenues and expenses. Net income or net loss is reported on these statements by subtracting your total expenses from your revenue. A positive result means you have a net income. A negative result means you have a net loss.
The purpose of the balance sheet is to present a picture at a point in time of what your business owns (its assets) and what it owes (its liabilities). Assets include cash and accounts receivables. Liabilities are items such as accounts payable and salaries payable. Stockholder's equity includes common stock and retained earnings. You're assets should always equal your liabilities and stockholder's equity.
· Comment on Aug 23, 2014, 10:02 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JOHN RUIZ
Aug 23, 2014, 10:02 PM
Financial statements such as income statements and balance sheets are two of the ways companies keep track of their operations. Each statement serves a very specific purpose as they report the financial status of two different aspects of the company's operations. The first is a company's income statement where the focus is on reporting all revenues, products/services sold, and expenses. The result of an income statement is the identification of both the gross and net profits after the calculations are made from the list of determined expenditures. The resulting calculation of an income statement allows companies to track their earned profits and understand the costs of their operations.
A balance sheet differs from income statements as it reports equities, liabilities, and assets. This is important as it allows a company to track all of the company's assets such as properties owned and contracts, the liabilities a company has such as the operational costs and the equity as the investments that exist within a company. As income statements report profits, balance sheets report a company's total liabilities, total assets, and a company's net wealth. These figures are often represented as a company's economic value.
· Comment on Aug 23, 2014, 10:43 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by JEREMY ECKLIN
Aug 23, 2014, 10:43 PM
The income statement is important to internal and external users because it demonstrates the results of operations during a given period of time. This period of time usually consists of one month, or a quarter of a year, or a full year but sometimes it is longer if the production cycle of a business is longer than one year. The income statement is used to show the revenue generated minus the expenses during a specific period of time. This information is useful to end users because it demonstrates profitability over periods of time in operation. If revenue exceeds expenses, the company has made a profit. If expenses exceed revenue, the business has a loss during that period of time. Investors use this information to predict future profitability of companies when considering investment opportunities.
The balance sheet compares assets to liabilities and stockholders' equity at a specific point in time. This is usually reported at the end of a month, quarter, or year. Assets consist of anything that can be declared for a cash value belonging to the company. Specifically this includes cash, accounts receivable, supplies on hand, equipment, and prepaid insurance. Liabilities refer to any debt incurred by the company in obtaining financing from creditors, investors, or vendors. Liabilities include notes, accounts, salaries, and interest payable. Stockholders' equity consists of investment from the sale of common stocks to stockholders combined with retained earnings of business operations. The balance sheet is used by creditors to evaluate the likelihood of repayment of investment. It can also be used to evaluate whether companies have sufficient cash on hand to meet immediate liabilities. Both statements are used by potential investors and creditors to attempt to garnish information about the potential success of a business and investments with the company.
· Comment on Aug 23, 2014, 11:10 PM
WEEK ONE - DISCUSSION QUESTION # 2
posted by KATIE LE
Aug 23, 2014, 11:10 PM
Purpose of Income Statement:
Also called the profit and loss statement, or income and expense statement, this document provides a snapshot of the company's profitability during a specific period. An income statement includes a note that says something similar to: "For the period covering January 1 through January 31, 2013." Periods for reporting the financials are company directed and could differ from company to company. One section of the income statement is dedicated to the income and revenue summarized into a sub-total for the period. The other half of the statement reflects the expenses for the same period. The difference between the two numbers determines whether the company was profitable or not during the stated period. If expenses were higher than income, the company experienced a loss during that business cycle (Media, 2014).
Purpose of Balance Sheet:
Another name for the balance sheet is the statement of financial position. Creditors and interested stock investors use the balance sheet to determine a company's financial standing because it lists what a company owns and what it owes. The balance sheet contains summarized information on a company's assets, the things that it owns and its liabilities, the debts it has. When you subtract the company's liabilities from the assets, what is left is called stockholder's equity, the amount that is held by the company's owners or stockholders (Media, 2014).
References:
Media, D. (2014). The Purpose of a Balance Sheet & Income Statement | Chron.com. Retrieved from http://smallbusiness.chron.com/purpose-balance-sheet-income-statement-61847.html
· Comment on Aug 23, 2014, 11:25 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by Robert Peck
Aug 23, 2014, 11:25 PM
The income statement is a financial form that shows how assets and liabilities were used during a specific period of time and how your business performed over a period of time. An income statement provides a summary of all revenue created and all expenses (by category) incurred by your business. An income statement displays what goods or services were sold which resulted in revenue for the company. Income statements also show earnings or profits of the business.
A balance sheet is a financial form that shows a shot of your business a specific period of time. A balance sheet will always display Assets, Liabilities, and Owner's Equity. A balance sheet identifies current and long term assets and liabilities. Balance sheets usually contain more than one year of financial information on them, which helps businesses and consumers identify trends or changes during a specific time frame.
· Comment on Aug 24, 2014, 7:37 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by KRISTIAN OGLETREE
Aug 24, 2014, 7:37 PM
DQ # 2: DISCUSS THE PURPOSE OF THE INCOME STATEMENT & BALANCE SHEET.
An income statement is just what the company the made that period it could be a month, year or a week. You can look at the statement to see what the company made and how much is being brought in and what adjustments need to be taken. Where a balance sheet has everything listed including the expense that comes along with the company. The balance Sheet is needed when trying to figure out the big picture for the company and gives them something to look at for the future.
· Comment on Aug 24, 2014, 9:26 PM
Re: WEEK ONE - DISCUSSION QUESTION # 2
posted by LOTTIE BAKER
Aug 24, 2014, 9:26 PM
The purpose of an income statement is to show the productivity of a company for a specific period of time. For example, the XYZ store wants to know the expense for period ending on 07/31/2014, an income statement would be created to provide the requested information. The balance sheet shows displays what a company owns (assets) and what is owes (liabilities) within in a specific time frame. For example, ABC corporation is preparing a balance sheet to show total assets, liabilities and owner equity for month ending in 01/31/2012.
