Write an essay about the two most important topics that you have read in the class. Include relevant topics from what you have learned throughout the semester. Provide research examples to support the development of your Reflection Paper overview.
TOPICS from chapter 5-6.
1.How Does an Organization Accumulate and Organize the Information Necessary to Prepare Financial Statements?
2. Understand the reasons that financial statements might not be fairly presented.
Please refer to Chapter 5 and 6 in the textbook that is uploaded in files. Include references from the text book.
You are required to submit a 4-Page (Title Page, 2 pages of substantial content, Reference Page), APA formatted paper with substantial content relating to the project instructions. Leverage this APA Format Made Simple document for setting up every exercise correctly.
Substantial Content Requirements
• Project content must include the student’s original thoughts based on the topics from our OER Financial Accounting Textbook.
• Direct quotes from references must be less than 20 words. Please review postings for sentence structure, grammar and punctuation errors. Plagiarized discussions will result in a “0” for the submission of this assignment.
• All assignment(s) derive from the OER Financial Accounting Textbook. For academic purposes, at least 1 APA formatted reference(s) from the OER Financial Accounting Textbook is required pertaining to the topic(s) in order to be eligible for full credit.
• Leverage this APA Format Made Simple document for setting up every exercise correctly
Chapter 5
Learning Objectives
- Explain the purpose and necessity of adjusting entries.
- List examples of several typical accounts that require adjusting entries.
- Define an “accrued expense.”
- Provide examples of adjusting entries for various accrued expenses.
- Describe the reason that accrued expenses often require adjusting entries but not in every situation.
Module 5 Overview
The first two steps of the accounting process were identified in Chapter 4 “How Does an Organization Accumulate and Organize the Information Necessary to Prepare Financial Statements? “ as “analyze” and “record.” A transaction occurs and the financial effects are ascertained through careful analysis. Once determined, the impact an event has on specific accounts is recorded in the form of a journal entry. Each of the debits and credits is then posted to the corresponding T-account located in the ledger. As needed, current balances can be determined for any or all of these accounts by netting the debits and credits. It is a system as old as the painting of the Mona Lisa.
The third step in this process was listed as “adjust.” Why do ledger account balances require adjustment? Why are the T-account totals found in Figure 4.3 “Balances Taken From T-accounts in Ledger” not simply used by the accountant to produce financial statements for the reporting organization?
Financial events take place throughout the year. As indicated, journal entries are recorded with the individual debits and credits then entered into the proper T-accounts. However, not all changes in a company’s accounts occur as a result of physical events. Balances frequently increase or decrease simply because of the passage of time. Or the impact is so gradual that producing individual journal entries is not reasonable. For example, salary is earned by employees every day (actually every minute) but payment is not usually made until the end of the week or month. Other expenses, such as utilities, rent, and interest, are incurred over time. Supplies such as pens and envelopes are used up on an ongoing basis. Unless an accounting system is programmed to record tiny incremental changes, the financial effects are not captured as they occur.
Following each day of work, few companies take the trouble to record the equivalent amount of salary or other expense and the related liability. When a pad of paper is consumed within an organization, debiting supplies expense for a dollar or two and crediting supplies for the same amount hardly seems worth the effort.
Prior to producing financial statements, the accountant must search for all such changes that have been omitted. These additional increases or decreases are also recorded in a debit and credit format (often called adjusting entries rather than journal entries) with the impact then posted to the appropriate ledger accounts. The process continues until all balances are properly stated. These adjustments are a prerequisite step in the preparation of financial statements. They are physically identical to journal entries recorded for transactions, but they occur at a different time and for a different reason.
Chapter 6
Learning Objectives
- Understand the reasons that financial statements might not be fairly presented.
- Describe the mission of the Securities and Exchange Commission (SEC).
- Explain the purpose of the EDGAR (Electronic Data Gathering and Retrieval) system.
- Discuss the times when state laws apply to corporate securities rather than the rules and regulations of the SEC.
- Explain the relationship of the SEC and the Financial Accounting Standards Board (FASB).
Module 6 Overview
Question: The potential importance of financial statements to any person making an analysis of a business or other organization appears rather obvious. The wide range of available information provides a portrait that reflects the company’s financial health and potential for future success. However, a degree of skepticism seems only natural when studying such statements because they are prepared by the company’s own management.
Decision makers are not naïve. They must harbor some concern about the validity of data that are self- reported. Company officials operate under pressure to present good results consistently, period after period. What prevents less scrupulous members of management from producing fictitious numbers just to appear profitable and financially strong?
Why should anyone be willing to risk money based on financial statements that the reporting entity itself has created?
Answer: The possible presence of material misstatements (either accidentally or intentionally) is a fundamental concern that should occur to every individual who studies a set of financial statements. Throughout history, too many instances have arisen where information prepared by a company’s management has proven to be fraudulent causing decision makers to lose fortunes. In fact, the colorful term “cooking the books”1 reflects the very real possibility of that practice. Enron, WorldCom, and Madoff Investment Securities are just recent and wide-ranging examples of such scandals.
The potential for creating misleading financial statements that eventually cause damage to both investors and creditors is not limited to current times and devious individuals. Greed and human weakness have always rendered the likelihood of a perfect reporting environment virtually impossible. In addition, fraud is not the only cause for concern. Often a company’s management is simply overly (or occasionally irrationally) optimistic about future possibilities. That is also human nature. Therefore, financial information should never be accepted blindly.