Evaluation of Financial Terms

This is the first in a series of Business research papers I wrote for my Master's degree program. Comments, criticisms, questions?






Before dabbling in anything new, one must make the necessary preparations to be sure you have a proper foundation to learn and grow from the new endeavor. As such, understanding the language of finance and accounting is paramount to understanding such things as they relate to running a business (ACE, 2017a). Understanding the language and culture of accounting is especially important for your business to remain in compliance with IRS and other government departments. In this analysis, I have tried to get a balance of terms to form the foundation for my education in the world of finance and accounting.

Accounting

“Just like in a checking account, debits are expenses taken from the account, and credits are income received into the account..”

Auditing

“The independent view and opinion about the financial statements of an organization.”

Cash Flow Statement

“Like a personal bank statement, a cash flow statement determines whether you can pay your bills.”

Equity

“After liabilities are removed Equity is the value that is left over. ”

Fixed Cost

“Doesn’t change with the number of sales like rent or salaries. ”

Generally Accepted Accounting Principles (GAAP)

“Issued by the Financial Accounting Standards Board (FASB) and refers to a common set of accounting measures.

Internal Control

“The plan is to set up policies and procedures, designate personnel and install safeguards to control the overall accounting and finance of a company."

Net profit

“The total amount a business has earned or lost at the end of a determined accounting period."

Return on investment (ROI)

“Return divided by the investment. More loosely put if a company invests money in marketing, they expect a good ROI."

This endeavor, though tedious, was a necessary preparation for learning the ways and procedures of finance and accounting as they pertain to business. My reasoning for entering this program was because of classes such as this. As much as I understand education and training, my understanding of the policies and procedures involved in proper accounting and finance could make a big difference in whether my school is a success or not. Ultimately, the IRS and other government entities could audit my company and if I can’t understand the language or culture of this aspect of business, I would likely be non-compliant, and audits could destroy my company. For instance, I have seen companies’ own internal audits turn up great inconsistencies that if caught by government auditors could result in massive fines and even prison terms for negligence. Although I have heard a lot of these terms before, I admit I didn’t know what they meant exactly. For example, I hadn’t realized that liquidity has to do with how much time it takes to convert an asset to cash. Nor did I understand the meaning of fixed cost or what a balance sheet was used for. The less I know the more I might rely on an accountant and accountants who could possibly end up cheating me out of revenue because they were slowly siphoning money behind my back. I must understand the terminology if I will be signing off on payroll and paying for various purchases. Internal controls are so important for me to have a grasp on the lifeblood of running a business.



References


American College of Education. (2017a). The language of Accounting and Finance: Module 1[Video]. Canvas. https://2571531.kaf.kaltura.com/playlist/details/1_8qi7sg1x


American College of Education. (2017c). Financial Terms and Definitions: Internal Control : Module 1[Video]. Canvas. https://2571531.kaf.kaltura.com/playlist/details/1_8qi7sg1x


Allison, G. S. (2015). Financial Accounting for Local and State School Systems: 2014 Edition. NCES 2015-347. ERIC Clearinghouse.


Ronald E. Everett, Donald R. Johnson, & Bernard W. Madden. (2012). Financial Accounting for School Administrators : Tools for School: Vol. 3rd ed. R&L Education


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