Question

THE ASSIGNMENT You are a consultant who hired to make recommendations on an accounting system for a new business. The business owner knows NOTHING about accounting. Write the beginning section of a recommendation on the new accounting system. In this opening section, discuss 1. The reasons companies create and maintain accounting systems The basic structure of assets, liabilities, and stockholders' equity including definitions and relationships The four basic financial statements The effects of revenues, expenses, and dividends on the financial statements The difference between net income and cash flow including the way each is shown on the financial statements (You know that the owner is already confused about this.) The paper must have a closing paragraph that summarizes and brings your paper to a conclusion. Cite all resources in proper format (APA or MLA). Plagiarism content should be 15% or less. Turnitin is embedded in iCollege. After you submit your document review your submission to check your plagiarism content. You can resubmit until you reach the 15% threshold. in mi tu o No

Answer 1

Why Accounting system is necessary in any Organization –Accounting is extremely important for recording the financial transaction in a business .

Financial record maintenance , summarizing of records to compile all the financial statement of any organization

Any company to run the business , need money , loan , credit facility . Lenders and Banker have to consider the financial health of an organization .

Another important factor to prepare account and financial statement for Investor , stakeholders .

Investor , creditor, debtors , government , customer and employees – all need to understand proper financial statement

Running company mean make Net profit , revenue growth , maintain Operating Cost , fixed cost to derived Net profit of the company .

Without accounting , financial records , no one can run business . Business run without direction . To run business , we need to maintain daily Income and Expenses . Maintain proper accounting records is must to keep

While defining financial statement , we need to divide into 4 major heads – Income Statement ( Profit & loss Income Statement , Balance Sheet , Cash flow and notes to Accounts .

Accountant has to maintain Balance Sheet on the basis of liquidity method – like Current asset , Non current asset , Current Liability , Non current Liability , last part of Equity

While design Balance Sheet => Asset = Liability + Owners Equity .Asset represents which are the resources owned and liability represents company debts owners equity – which represents contribution by shareholders + Retained earnings

In a balance sheet , total sum of assets must be equal to liabilities + Owners Equity

Another important stage in Income Statement . Income Statement includes Revenue , direct cost ( mainly – Employee Salaries , wages ,) + consumption of Inventory . Need to calculate Operating Margin, EBITDA and EBIT .If company depends on Loan , debt ( long term ) , they company needs to account Interest cost , Company spends good amount money in relates to capex , so they need to account “ depreciation expense in to Profit and loss account . Company has to account revenue, captured direct and indirect cost , Interest , depreciation to derived “ Net Profit “ of the company .

Company has to derived cash flow or company has to monitor cash on daily basis and need to drived whether companies reserve , EBITDA is good enough to declared divided . In case of company having good cash balance , then company can declare divided .

Under Statement of change in equity , we need to disclose divided payment out of “ Retained Earnings “

Company has to derived Net Income under “ Income Financial Statement “.

On the basis of Net Income , we need to derived Indirect method to derive Cash flow of the Organization .

Under cash flow system , Accountant start with “ net Profit “ . We need to add back all “ Non cash Item “ like Depreciation expenses , provision for Income tax , provision for doubtful etc ,, to derive cash flow operation before change in Working capital . With help of Balance Sheet , we need to find out movement of working capital ( change in Current asset and current Liability ) and to derived Cash flow from Operation . With help of cash flow from operation – we need to understand position of Account receivable ( to understand whether receivable balance is increasing or decrease ) . Always need to understand that In case of receivable, Inventory balance increase in Negative pressure on Working capital . Same way we need to analysis “ trade payable movement “ + other liability movement .

Other part of cash flow is “ Investment activity “ + Financial Activity “ . Investment activity represent , how much capex made by company on yearly basis ,. Company has to observed whether this capex Investment wil convert into revenue in near future and generate good margin as well as Return on Investment . Other side , Financial Activity represents movement of : Debt “ ( repayment of loan , new borrowings “ + dividend movement + Interest movement .

Company always try to main good closing cash balance to maintain business running and maintain all expenses .