Discussion Board – Module 1

Accounting has frequently been referred to as the language of business and like other professions has its own language that describes the financial history and current financial status of the organization. Briefly discuss one experience with the terminology (key concepts) found in the first module reading in our text.

I have to Reply to at least two of your classmates (appx. 100 words).

My first classmate Discussion.

So, why accounting is an essential factor and necessity for every business and industry? Asking that question is like answering why the sun is important to Earth. Accounting provides the energy and soil elements which promote the business seed to grow strong, bear fruits, and ensure the ongoing health of a business. Accounting it is not just about simple transactions performed by cashiers through points of sale in a store. It is about inventory, payrolls, fixed assets, taxes, and many reports regarding cash flow, budgets and cash plans, accounts receivable, accounts payable, stock holding etc., that guide the business in decision making process about the current status of future projects. Without accounting there is no way to accurately predict cash flows, raise funds for projects, or know if you can afford to purchase equipment or hire new staff. (Non-profit accounting basics, 2009). The assets, liabilities and equity, and the need to coordinate these areas create the fundamental basics of accounting equation. Assets = Liabilities + Net assets

Assets include resources owned by a company and which have future economic value (cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles).
Liabilities represent obligations of the company; they are amounts owed to others (notes payable, interest payable, wages payable, unearned revenue etc.).

Accounting is not just for accountants, it is applicable and helpful in our personal life too. It is necessary for not living paycheck to paycheck but to manage better the family budget and expenses. For example assets in my family account represent cash, saving accounts, education savings, plan “B” fund, furniture, cars, jewels. Liabilities are related to credit cards, rent, student loan, and categories such as food, gas, clothing, entertainment. After identifying the budget and expenses, is really important to keep track and records. Bank statements, receipts, and online shopping tools are really helpful to track my spending. An important step is analyzing the reports from accounting spreadsheet. When I look to my spending every two or three months, I realize what kind of expenses were unnecessary or why the ratio between the budget and expenses was so positive in a certain month. If that is the case, I try to keep that pattern. For personal finances I use the cash method of accounting, although cash method is not the most accurate, but it is the easiest. The amount of cash is submitted in the spreadsheet when it is received and the expenses when the cash is no longer in my wallet. Under the accrual method of accounting the revenue is registered when the service is provided or the product is delivered to the customer, with the expectation that money will be paid. This method is more accurate since it includes accounts receivables and payables and as a result gives a more accurate snapshot of the profitability of a company. The accrual method is more convenient for large business with plans of expansion, large amount of funding, paid staff, and plans to raise additional funds from larger donors such as foundations or government entities (Non-profit accounting basics, 2009). If you wish to have an audit done under generally accepted accounting principles you should use the accrual method of accounting. In addition, matching principle, one of the basic guideline in accounting is associated with accrual method and adjusting entries.

My second classmate Discussion.

Accounting deals with various concepts that helps in presentation of business results in a way that can show the performance and status of the entity. One experience I have had with the terminology of accounting concerns depreciations, which aligns to the concept of matching. This has been reflected in how the value of equipment is recorded every year at the institution I work for. Specifically, the lower values in subsequent years account for a charge for the wear and tear that occurs due to normal use of the equipment. As such, whereas the equipment may be used for many years, the charge for the wear and tear that occurs for each specific year is accounted for during that year rather than being accounted for at the end of the useful life of the equipment. This practice aligns to the issue of materiality that requires expenses that occur to be recorded in the year during which the revenues that led to such expenses are recorded.

In my work, I have also encountered accounting concepts such as an entity, assets, liabilities, net assets, and going concern. The concept of the entity for example applies when we report the performance of the department I work in, for example when reporting the expenses of the department. Moreover, I have encountered the concepts of assets and liabilities, the resources and obligations of the entity respectively, whenever we are required to record any receivables and payables for the entity. Further, the equipment, cars, and buildings purchased or acquired by the entity are classified as assets as per the reports the entity usually issues, whereas loans taken by the entity are classified as liabilities. I have also encountered the concept of net assets, the difference between assets and liabilities, in various accounts prepared for non-profit hospitals.