Question

1. Define the accounting function of a business.
   • Why is accounting such an important function in business?
   • How might a company use accounting to understand its own financial strengths and weaknesses?
2. Define the Finance function of a business.
   • Why is Finance an important function in business?
   • How might a company use finance to decide whether or not to undertake future projects?
   • What is the difference between short-term financing and long-term financing?
3. Assume that members of Bill family form a corporation called Accounting Software, Inc. (ASI). On December 1, 2013, several members of Bill family invest a total of $10,000 to start ASI. In exchange, the corporation issues a total of 1,000 shares of common stock. What is the effect on the corporation’s accounting equation? Explain your answer.

Requirements:

• Minimum Page Length – 2 full pages (excluding title/header and reference list); 12-point Times New Roman; double spaced; and page numbering.
• Please be sure to answer the entire question to receive maximum credit for this task.
• Use and include information from the weekly course content and outside sources to support the conclusions contained in the paper.
• Be cognizant of spelling, punctuation, and grammar.

Answer 1

Solution 1:

Accounting Function:

Accounting functions can be classified into two types of functions, they are Managerial Accounting Function and Financial Account Function. Accounting has become an integral part of the business, irrespective of what type of business it is involved into. Everything in the business is driven by numbers and accounting functions adds meaning and importance to these numbers. The numbers may indicate increase in revenue, decrease in sales, increase in expenses, increase in inventory purchase, increase in profit etc. These numbers can be interpreted and re-defined with the help of a solid accounting function. Accounting functions considers different accounting principles mentioned in GAAP (Generally Accepted Accounting Principles) and Accountings Standards to interpret and redefined the numbers in a business. The other accept of accounting function is book keeping. Bookkeeping interprets the business activities into records. These records are used in the business for forecasting and applying loan in bank.

Solution 2:

Importance of Accounting Function:

Following are the importance of Accounting Function.

• Accounting functions help in maintains records of the business.
• Accounting function interprets daily activities using GAAP principles and accounting standard and It helps in maintaining records as per the required accounting standards.
• Accounting function helps in maintaining records that can be used accurately for analysis and helps management in taking important and accurate decisions.
• Records maintained using accounting function gives exact picture of the financial position of the business. Helps in determining the profits or loss of the business.
• Managements will not miss on opportunity in analysing the decision.

Solution 3:

Accounting Functions in determining the strength’s and weakness of the business:

Accounting functions gives the details of the internal strength and weakness of the business. We can determine the internal strength and weakness of the business by accessing the records of the business. The representation of financial position of the business, ascertainment of profit or loss of the business, analysing the accounting statement, are the main functions of Accounting. The banks before offering loan ascertain the strengths and weakness of business by looking into the financial position of the business. The internal strength of the staff is determined based on the success of the business. The success of the company’s product is determined by looking at the sales figure mentioned in the books of accounts. The managements success is determined by the decision taken for the business. Investors looks into the above-mentioned details to evaluate the internal strength of the business, before making investment in the business.

Solution 4:

Definition of Finance Function:

One of the functions of accounting is finance function. Finance function interprets the business activities and keep a record of them using GAAP and Accounting Standards. These records are analysed to understand the history of the business. The representation of financial position of the business, ascertainment of profit or loss of the business, analysing the accounting statement, are the main aspects of financial function.

Solution 5:

Importance of Finance Function:

The records maintained by the business using finance functions are analysed to understand the history of the business. The financial reports are used by the shareholder to evaluate and forecast business. Investors analyse these reports before making investment into the business. Bank before offering loans for the business analyse the financial position of the business. Tax are levied by the looking into the financial reports of the business.

Solution 6:

Decision to undertake future projects:

Every project undertaken by the business involves a risk factor. The project undertaken by the business will not generate revenue from the year one, it will start generating revenue after few years. This is known as risk factor. The finance position of the business helps in determining whether the business is in a position to take the risk or not. For new undertaking the business requires capital. Capital can be contributed to the business either through loan, bonds or by public investors. Depending on the type of project the company will opt for either short-term financing or long-term financing.

Solution 7:

Shot-Term Finance and Long-Term Finance:

Short-Term finance is considered as a loan taken by the business for a time span of one year or for less than one year and can be obtained for lesser flotation cost. It is very easier to acquire short-term for the business.

Long-Term finance is considered as a loan taken by the business for a time span more than a year. It is obtained by giving collateral securities and involves huge flotation cost such as underwriting expense, legal fees, registration fees etc. It is not an easy procedure to acquire long-term finance.

Solution 8: Effect on companies accounting equation. Accounting Equation is Assets Liabilities Stock Holder Equity = ASI asset will be increase by $ 10,00o. The purchases of ASI stock by cash, and cash will be shown on the asset side. Shareholder equity will be increased by $ 10,000 as the shares are issued for the investment in ASI stock. Afer the $ 10,000 used to start ASI the revised account equiation will be Assets ($10,000) Liabilities Stock Holder Equity ($ 10,000) + $10,000 Liabilities+$10,000 Journal Entry for the above transaction will be Cash A/C Dr $10,000 To Common Stock A/C $10,000 (To Record Investment in ASI stock)