ACT101, Section:3

 Group Assignment of Team White Members:

Tanzim Tahiat (2020-3-10-052)

Mahadi Hasan (2020-3-10-053)
Md. Motakabbir Rayhan (2020-1-10-050)
 Habibullah Fahim (2020-1-10-053)
Sujana Rahman (2019-3-10-038)

Submitted to:

Dr. Md. Rashidul Islam

 Assistant Professor Department Of Business Administration, East West

University

Submitted by: Mahadi Hasan (2020-3-10-053)

BBA Department

 Date of Submission: 7 September, 2021

Students of accounting will find it helpful to explain all the information
below if they want to convince someone about the necessity of accounting
for their business. 

How is accounting defined?

Accounting information is used by all companies with economic resources (such as money,
machines, and buildings). Accounting is therefore called the language of business. Accounting is
also the language of providing financial information about non-profit organizations (such as
government, churches, charities, fraternities, and hospitals). The accounting process provides
financial data to a wide variety of people, and their reasons for seeking out information are very
varied. Bank officials may examine a company's financial statements to determine its ability to
repay loans, for example. Investors can compare data from multiple companies to determine
which one represents the simplest investment. Accounting provides management with important
financial data that is helpful for making decisions.

The American Accounting Association defines accounting as "the process of identifying,

measuring, and exchanging economic information so that knowledge users can make wise
judgments and decisions." Accounting is the process of recording corporate financial
transactions. The accounting process involves summarizing and analyzing these transactions and
reporting them to regulators, regulators, and collection entities. The financial statements used in
accounting are concise summaries of currency transactions during the accounting period,
summarizing the company's operations, financial status, and cash flow.

This information is primarily financial information expressed in currency. Therefore, accounting

can also be a measurement and communication process used to report on the activities of
commercial for-profit organizations. As a business communication and measurement process, the
information provided by accounting enables data users to make sound decisions and judgments.

How does it work?

Accounting is one of the most important functions of almost every business. A bookkeeper or
accountant in a small business can handle it, or a large finance department in a company with
dozens of employees can. Reports generated by various accounting processes (such as cost
accounting and management accounting) are essential to helping management make informed
business decisions.

The main task of an accountant is to prepare and verify financial records, and this task extends to
all others. They make sure records are accurate and taxes are paid correctly on time. Accountants
and auditors provide an overview of corporate financial operations to help them operate
effectively. Tax accounting information includes financial accounting information, which is
written and presented in the form of government tax laws (ie, the Internal Revenue Law). Tax
accounting focuses on complying with tax laws and presenting a company's profit and loss
history to minimize its tax liability.

Accounting involves more than just reporting income to tax authorities or providing income and
expenditure information to potential investors. Accounting is also used to make business
decisions.

Accounting activities are vital to a business organization

Accounting skills are essential to understanding investments, managing personal finances, and
participating in business. The information should be entered into the company's general ledger
("books") and reported to tax authorities, investors, shareholders, regulators, and other potential
stakeholders.

Although many people believe that accounting depends solely on mathematical skills, it also
requires insightful business knowledge, prudent judgment, and strong written and oral
communication skills.

We may find that of all the business knowledge we have acquired or will learn, the study of
accounting will be the most helpful. As a student and consumer, our financial and economic
decisions involve accounting information. When we file an income tax return, accounting
information helps determine the amount of tax we are going to pay. Our understanding of
accounting will also affect many of our future career decisions. We cannot escape the impact of
accounting information on our personal and professional life.

Accounting data is used for many purposes. These can include:

Managerial communication

Companies must communicate their financial status to managers through the use of accounting
and financial data. Managers need detailed financial reports to estimate budgets and costs.

Contributing to the government

Forms and tax attachments are filled out using accounting data. Additionally, federal, state, and
local taxes (due or owed) can be determined.
Getting a loan

Lenders use accounting records to determine the creditworthiness of the applicant.

Satisfying Regulatory Bodies

Some companies are required to provide detailed reports to regulatory bodies regarding its
financial position. Accounting data provides the basis of these reports.

Shareholder updates

In order to understand the fiscal health of the business and, consequently, its investment
potential, shareholders require detailed financial information derived from accounting records

Capital Markets Information

Capital markets rely on accurate accounting and financial data, which in turn impacts stock
prices.

Cycle of Accounting:
Accounting is a systematic process of identifying, analyzing, and recording the accounting
events of a corporation. The accounting cycle is a methodical set of rules for ensuring the
accuracy and conformance of financial statements. The typical 8-step process begins when a
transaction occurs and ends when it is included in the financial statements.
The eight steps of the accounting cycle include recording journal entries, posting to the general
ledger, calculating trial balances, making adjusting entries, and creating financial statements.
Steps in the Accounting Cycle: There are eight steps to the accounting cycle. Which are-

Identify Transactions: An organization begins their accounting cycle with the identification of
those transactions that comprise a bookkeeping event. This could be a purchase, refund, payment
to a vendor, and many more.
Record Transactions in a Journal: Next comes recording of transactions using journal entries.
The entries support the receipt of an invoice, recognition of a purchase , or completion of other
economic events.
Posting: When a transaction is recorded as a journal entry, it should post to an account within
the ledger . By using an account the general ledger provides a breakdown of all accounting
activities.
Unadjusted Trial Balance: After the corporate posts journal entries to individual ledger
accounts, an unadjusted balance is ready . The balance ensures that total debits equal the entire
credits within the financial records.
Worksheet: Analyzing a worksheet and identifying adjusting entries structure the fifth step
within the cycle. A worksheet is made and makes sure that debits and credits are equal.
Adjusting Journal Entries: At the top of the amount , adjusting entries are made. These are the
results of corrections made on the worksheet and therefore the results from the passage of your
time . For example, an entry may accrue interest revenue that has been earned supporting the
passage of your time .
Financial Statements: Following the posting of adjusting entries, a corporation prepares an
adjusted balance followed by the formalized financial statements.
At the end of finalizing temporary accounts, revenues, and expenses, use closing entries to
close the books. Therefore, these closing entries include transferring net income into retained
earnings. As a last step, a corporation prepares the post-closing balance to ensure that debits and
credits match and that the cycle can begin again.

What can happen if we don’t care about accounting?  

Well, everyone around us continually stresses the importance of keeping accurate business
finance records. But what about the downside? What can happen if we don’t care about
accounting? Now, we are going to know that.

Can Lose Money

Actually, this is incorrect. Without accounting our business will lose money. If we have a sole
member business, we do everything—including invoicing. And when business is good,
remembering all of the instances in which we’re supposed to get paid can get real hard, real fast. 

Tax Time Will Be a Nightmare

How many CPAs or tax prep pros do we think would be happy to have a client who has no
accounting or bookkeeping system in place? Zero. Tax prep without a year’s worth of records is
a nightmare. Is it doable? Yes. But, will it be time-consuming? Either we’re tracking down a
year’s worth of records on our own or we’re paying a bookkeeper to do the work. 
 
Have No Proof When We Need it Most
Should we get an inquiry from a local, state, or federal revenue agency, the onus is generally on
us to provide evidence in response. What sort of inquiries are we talking about here? It really
runs the gamut: everything from a simple “please resend a copy of last year’s tax returns” to a
full-on audit.
 
Growth Will Be Hard
If our business gets to the stage where it’s time to expand, open a new location, or build out a
team, a lack of financial records will make things difficult. Would we give a loan to someone
with no evidence of responsible financial practices? Would we work for a company that is lax
about reimbursing expenses? Would we rent space to a tenant that can’t provide profit and loss
statements for the last few years? The answer to all of these questions is no. Without a financial
history, growing our small business will be hard.
 
 
 

Uses and necessity of financial statements

 

 The general purpose of the financial statements is to provide information about the results of
operations, financial position, and cash flows of an organization. This information is used by the
readers of financial statements to make decisions regarding the allocation of resources. At a more
refined level, there is a different purpose associated with each of the financial statements. The
income statement informs the reader about the ability of a business to generate a profit. In
addition, it reveals the volume of sales, and the nature of the various types of expenses,
depending upon how expense information is aggregated. When reviewed over multiple time
periods, the income statement can also be used to analyze trends in the results of company
operations.

As a group, the entire set of financial statements can also be assigned several additional
purposes, which are:

●        Credit decisions. Lenders use the entire set of information in the financials to
determine whether they should extend credit to a business, or restrict the amount of credit
already extended.
●        Investment decisions. Investors use the information to decide whether to invest, and
the price per share at which they want to invest. An acquirer uses the information to
develop a price at which to offer to buy a business.
●        Taxation decisions. Government entities may tax a business based on its assets or
income, and can derive this information from the financials.
●        Union bargaining decisions. A union can base its bargaining positions on the
perceived ability of a business to pay; this information can be gleaned from the financial
statements.

Financial Statements: Their Uses

Following are some of the uses of financial statements:

1. Determine the financial position of the business: The most important use of the
financial statements is to provide information about the financial position of the business
on a given date. This piece of information is used by various stakeholders in order to take
important decisions regarding the business.
2. To obtain credit: Financial statements present the picture of the business to the potential
lenders and this information can be used by them to provide additional credit for business
expansion or restrict the credit so as to start recovery.
3. Helps investors in decision making: Financial statements contain all the essential
information required by the potential investors for determining how much they want to
invest in the business. It is also helpful in decision making regarding the price per share
that the investors want to invest. A sound financial statement is the key to obtaining
investments.
4. Helps in policy making: The financial statements help the government in deciding the
taxation and regulations policies based on the way the company is running its operations.
The government bodies can tax a business based on the level of their income and assets.
5. Useful for stock traders: Financials statements help stock traders with the knowledge of
the situation the company is in and therefore adjusting their quotes accordingly.

 
Necessity of financial statements
The financial statements of a company show its business activity and financial performance. The
U.S. requires companies to report their financial statements quarterly and annually. SEC
(Securities and Exchange Commission). Markets and companies are monitored by the SEC to
ensure everyone is playing by the same rules and that markets function efficiently. The SEC
requires specific guidelines when issuing financial reports to allow investors to compare one
company with another easily. 
Financial statements are important to investors because they can provide enormous information
about a company's revenue, expenses, profitability, debt load, and the ability to meet its short-
term and long-term financial obligations.
1.Balalnce sheet
2.lncome statement
3. Cash flow
4. Statement of equity
are the main thing of financial statements.

What are the reasons why a company needs accountants?

Every successful business relies on accounting. Accounting firms must have professional
accountants to handle their accounts. The functions of accountants include auditing,
bookkeeping, tax preparation, among others. The following are the main reasons why you need
accounting services for your business.

Data Accuracy
In many small businesses, everything is done by themselves. It might be because they are trying
to save some money and believe they are capable of handling it, which actually has a negative
impact on the business. An inaccurate record of the company's finances can be detrimental to the
business. You must be organized all the time if you want your business to succeed. A
professional accountant could produce an effective record-keeping system that is accurate and
current. When any financial irregularity is found, you would be prepared to deal with it.

Kept You Free

Managing a business involves financial and mathematical calculations. If you own a business
that provides accounting services, then you probably waste the majority of your time maintaining
the records and rechecking them. With dedicated service, you can be free so that focus more on
other important aspects of the business.

Tax issues can be avoided

If you are making an income tax return, then you must have well-maintained books so that you
will know the tax amount. Taxes will be straightforward and accurate if you hire an expert
accountant. You will avoid taxes like paying penalties and fines if you file your taxes incorrectly
this way.

Do the Self-Auditing
Don't sit idle and wait for the income tax authorities to cause problems in your finances. Your
accountant can help you with periodic self-audits. The IRS would be notified of any mistakes
made in the preparation of tax returns. The issue can also be dealt with at the beginning. Forensic
accountants, with their extensive training in accounting, look for irregularities and attempt to
minimize or eliminate them for the betterment of the company.

You would be Relax

An accountant for the company means paying for peace of mind. You can focus on the other
aspects of your business when your finances are running smoothly and error-free, rather than
chasing the mismatched numbers in the accounts.
Professional accounting services support your business wealth and help you avoid the pitfalls of
the financial world.

Chart of necessary accounts that should be maintained by a company:

Accounts are one of the main components of managing your finances. Managing your
small business more effectively requires an understanding of the different ways this
word is used and the impact it has on your reports. 
By listing all the accounts involved in your company's daily operations, the chart of
accounts should give anyone looking at it an idea of your business. The list is:

 Cash account- A cash account is a type of brokerage account in which the

investor is required to pay the full purchase price for securities
 Bank account- A bank account is a financial account that a bank or other
financial institution maintains to record the financial transactions between it
and its customers.
 Credit account- An arrangement where a bank, store, etc., allows a customer
to purchase things with a credit card and pay for them later.
 Undeposited Funds- It is an internal QuickBooks account that holds funds
until you are ready to deposit them.
 Account for income or revenue - An income account records income or
revenue.
 Expense account- Employees have the right to claim reimbursement for
expenses incurred for work-related purposes.
 Asset-  An asset account records the assets a company owns.
 Liability account- A liability account is a section of the business's books
showing what it owes
 Equality account- Equity accounts represent ownership of a company.
 Account payable- An account payable (AP) is a payment due to a vendor or
supplier for goods or services received but not yet paid.
 Accounts Receivable- A receivable(AR) is the amount of money due to a firm
for goods or services delivered but not yet paid for.
 Cost of goods and sold- A retailer's cost of goods sold (COGS) is the cost of
producing its goods sold
 
Accounting system for a company :
The system that collects and processes transaction data of a company and provides financial
information to the interested parties is known as the accounting system. An accounting system
includes every step of the accounting cycle and also includes documentary evidence of every
transaction done by a business. Transactions with documentary evidence, journal, ledger, trial
balance, worksheet,financial statements, determining profit and loss and other financial results,
etc should be done step by step in an accounting system. Developing an accounting system helps
a business organization to provide information for external uses such as tax agencies and
investors and also for internal purposes, such as evaluating efficiency and profitability of a
company. It should be set up to closely monitor and maintain each and every operation of a 
company. 

we can develop an accounting system for a business according to the chart below:

Invoicing & Billing: Invoicing means keeping documents that maintain record of transactions
between a buyer and seller, such as a paper receipt from a store or online records from  an e-
tailer. 

Billing refers to keeping the document outlining the amount a customer owes for goods or
service received and is printed or written out as a statement of the charges. 

Payroll: Payroll is the compensation that a business has to pay to its employees on a given date. 

Bookkeeping: The process of recording all the financial transactions of a business. It involves
preparing source documents of all transactions, operations and other events of a company. 
Budgeting & Forecasting: Budgeting and forecasting are two financial tools that a business
uses to make plans for their growth. Budget reflects what you want to happen and the forecast
reflects what you think will happen. 

Inventory Management: A systematic approach by which a company manages sourcing,

storing and selling of their inventory. 

Fixed Asset Management: The process of tracking and monitoring all the physical assets owned
by a company. 

Analyzing a company's performance in light of different financial statements:

A financial statement analysis evaluates a company's performance or value by analyzing its
balance sheet, income statement, cash flow statement, etc. Both internal and external users of
financial statements can use them to get a clear picture of a company's overall health, value, and
financial performance. An analysis of financial statements should include the following three
techniques: horizontal analysis, vertical analysis, and ratio analysis. Every business maintains
three main financial statements, the balance sheet, income statement, and cash flow statement, to
manage their operations and to provide transparency to their stakeholders. The three statements
are interconnected and provide different perspectives on a business. 

Balance sheet:
 A report of a company's financial worth in terms of book value.
 Provides information about the company's assets, liabilities and Shareholders equity. 
 Gives idea about company's operational efficiency,expense arrangements, equity capital
investments and retained earnings. 
 The final value of shareholders equity is considered a company's book value which is an
important performance metric that increases or decreases with the activities of a
company. 

Income statement:

 Calculates a company's earned revenue and expenses to determine the net income profit
or loss. 
 Works with revenue, direct and indirect costs, interest and taxes. 
 Basic analysis of income statements involves the calculation of gross profit margin,
operating profit margin and net profit margin. 
 Shows company's cost at different points of the operations. 

Cash Flow Statement:

 Provides an overview of the company's cash flow from operating activities, investing
activities and financial activities.
 Net income is included as a top line item for operating activities. 
  Investment activities show cash flows which are involved with firmwide investment. 
 Financing activities section includes cash flow from both debt and equity financing. 

Three techniques are most commonly used by analysts. Firstly, a horizontal analysis involves
comparing historical data and is intended to identify a company's growth trends over time.
Secondly, vertical analysis compares items on a financial statement with each other.
Additionally, ratio analysis compares line-item data as part of fundamental equity analysis. 

An analyst may use a number of ratios on a company's income statement to determine how
efficiently it generates profits and shareholder value. The gross profit margin of a company
shows the difference between revenues and costs of goods sold. A higher gross profit margin
indicates a positive sign for a company. By applying a horizontal analysis to the company's
operating trends, the analyst may observe that the gross profit margin has been increasing for
nine fiscal periods.