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Why Are Ethics So Important In The Field Of Accounting Accounting Essay

Paper Type: Free Essay Subject: Accounting
Wordcount: 1630 words Published: 1st Jan 2015

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Based on what you know about accounting, what role do you see it playing in business operations? How dependent do you think a business is on its accounting department? Why?

I think that accounting plays a very large role in business operations because it is needed to show the financial status of that business. It is also necessary to know what the status is in order to be able to make important decisions involving expenses and money transactions. I think that a business is extremely dependant on its accounting department for these reasons. The accounting department could almost be considered the back bone of a business in terms of the company’s financial success. Without reliable financial reporting a business could incur losses, possibly get audited and possibly even cause a business to go bankrupt.


Why are ethics so important in the field of accounting?

Accounting ethics are important because a business relies on the reported financial status to make its business decisions. A business must have accurate reports and know that the business has sufficient funds to continue to operate and be able to pay rent and other bills, pay employees, and to continue producing products and/or offering services. Accountants have acces to inside information and assets that could be detrimental to a business should it enter into the wrong hands. A business needs to be able to rely on competent and ethical professionals with confidence that the finances are being accurately handled and reported.


When reviewing a financial report, why should information be reliable, relevant, consistent, and comparable? In other words, why are these accounting characteristics important? What kinds of problems could be created if a financial report is not reliable, relevant, consistent, or comparable?

Information in a financial report needs to be reliable, relevant, consistent, and comparable because many people rely heavily on this information in order to make important business decisions. The report is useless to stockholders, managers, employees, and creditors if the information is not accurate and able to give them the information that they need to make certain business, lending, buying and/or selling decisions. The information must be relevant in order to make a difference in the decisions people make regarding the company and its future. The information should be verifiable so that users know it can be relied on. It needs to be comparable so that different companies can compare performance. The reports should be consistent so that a company can easily refer back to the information if needed in the future.

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If the information is not reliable, users could make wrong decisions based on inaccurate information and could potentially lose a lot of money doing so. If the report is not relevant, users will not have the information needed to make important business decisions. If the report is not consistent, a company may have a hard time tracking financial results to compare with other years.


How does information from financial reports influence business decisions? Why is it important for business managers to understand the information found on financial reports?

Information from financial reports can influence business decisions by offering its user a prediction of what the business’ future may look like based on how the company has done in the past. If these reports show that the company has done well over the last two periods, then decisions can be made based on the projections that the company may continue to do well in the next period. For example, and investor may see this information and decide to put money into the company because he/she believes that the company will continue to make profits as it has been doing recently. A creditor may decide to lend money to expand the company because it see in the reports that the company has been doing well and should be able to repay the debt. Managers need to be able to understand the information on financial reports because they need to  make important business decisions for the future the company based on the company’s expenditures, production, and profits or losses.


How would you describe the difference between financial and managerial accounting? What are the distinguishing features of managerial accounting?

The main difference between financial and managerial accounting is that managerial accounting is for internal users such as officers and managers. Financial accounting, on the other hand, is for the needs of external users such as stockholders, creditors, and regulators. Though each field of accounting deals with the economic events of a

business, managerial accounting is done with the purpose for making specific decisions in regards to the company.

The distinguishing features of managerial accounting are that internal reports are produced as often as needed, they are very detailed, and there are no independent audits done on these reports.


Select a management function (planning, directing and motivating, or controlling) and explain how that function relates to business as a whole. Next, select a different function listed by a classmate. Discuss with your classmate how the functions you each selected complement each other. 

Directing and motivating is a management function that is important in any business. It is essential to any company to make sure that all business operations are running smoothly. This involves implementing planned objectives and providing necessary incentives for employees as well as selecting executives, appointing managers and supervisors, and hiring and training employees. I worked at Circuit City for four years and I can share now from experience just how important motivating employees is and how badly a company can suffer without proper motivation and incentives. This is something that this company really lacked on (at least the one I worked at did) and now it has gone out of business. I am sure that there were many other reasons involved for why it went out of business, but I never felt in my fours years there that me or any other employee was ever really motivated by management and there was really no extra incentives to being a good worker. The company had an very high turn around rate for employees and managers and they were never trained well. I pretty much had to figure everything out on my own when I first started working there. I had probably about seven different managers in those four years and some I don’t think ever even knew my name!


You know how important it is to create budgets for your household. How does budgeting help management make good business decisions?

Budgeting can help management make good business decisions that will help them to maintain enough cash to pay the company’s creditors, to have sufficient

raw materials to meet production requirements, and to have adequate finished goods to meet expected sales. Budgeting is important for management to be able to plan ahead and to be able to help the company to reach its financial goals. Good budgeting also provides and early warning system for any potential problems so that action can be taken beforehand. Budgeting also helps management make good decisions because they are likely to be more motivated to reach goals if the company’s objectives are laid out before them.

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What are some of the different types of budgets? Describe in detail one type of budget covered in the text. Describe what the budget is used for and what information it provides a business. Then, as you respond to your classmates, discuss how the budget you described relates to the budget they described. Discuss how a business benefits from each of the budgets.

Some of the different types of budgets are the sales budget, production budget, direct materials budget, and the direct labor budget. The sales budget is the first budget that is prepared and is especially important because each of the other budgets depends on it. The sales budget is made from management’s best estimate of anticipated sales revenue for that budget period. The sales budget can affect net income if the projections are not accurate. This budget is relied heavily upon to determine how much inventory is needed to meet the sale demands in the budget period. This budget shows the expected unit sales volume and its anticipated unit price. These expected unit sales volume and the anticipated unit price are multiplied together to determine what the total sales budget will be for the year.


Think back over what you have studied and learned in this course. Do you have a new perception of or appreciation for the field of accounting and how it contributes to business? Explain.


I can honestly say that I have a new appreciation for the field of accounting. I had no idea how important accounting was to a business. Accurate accounting is important not only to the business as a whole, but also to the managers, the investors and the creditors. Financial statements, budgets and record keeping are far more complicating than I thought they would be. A person could go on all day and still not cover every aspect of accounting; profits and losses, assets and liabilities, partnerships and corporations, contribution margins, and audits- just to name some.  I also now see why ethics are so important in accounting too. Good or bad ethics in accounting can either make or break a company.


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