In your own words, how would you define accounting? What is its purpose, and why is...

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In your own words, how would you define accounting? What isits purpose, and why is it important?
Explain the differences between managerial accounting andfinancial accounting.
What is an income statement, a balance sheet, and thestatement of owner’s equity?
Explain what the accounting equation is and how itworks.
Why is it not a good idea to falsify financialstatements?
Read the case study below and answer the questions thatfollow:
Counting Earnings before They Hatch: You recently ran into oneof your former high school teachers. You were surprised to learnthat he’d left teaching, gone back to school, and, a little morethan a year ago, started a business that creates Web sites forsmall companies. It so happens that he needs a loan to expand hisbusiness, and the bank wants financial statements. When he foundout that you were studying accounting, he asked whether you’d lookover a set of statements that he’d just prepared for his first yearin business. Because you’re anxious to show off your accountingaptitude, you agreed.

First, he showed you his income statement. It looked fine:revenues (from designing Web sites) were $94,000, expenses were$86,000, and net income was $8,000. When you observed how unusualit was that he’d earned a profit in his first year, he seemed alittle uneasy.

“Well,” he confessed, “I fudged a little when I prepared thestatements. Otherwise, I’d never get the loan.”

He admitted that $10,000 of the fees shown on the incomestatement was for work he’d recently started doing for a client(who happened to be in big trouble with the IRS). “It isn’t like Iwon’t be earning the money,” he explained. “I’m just counting it alittle early. It was easy to do. I just added $10,000 to myrevenues and recorded an accounts receivable for the sameamount.”

You quickly did the math: without the $10,000 payment for theclient in question, his profit of $8,000 would become a loss of$2,000 (revenues of $84,000 less expenses of $86,000).

As your former teacher turned to get his balance sheet, yourealized that, as his accountant, you had to decide what you’dadvise him to do. The decision is troublesome because you agreethat if he changes the income statement to reflect the realsituation, he won’t get the bank loan.

What did you decide to do, and why?
Assuming that he doesn’t change the income statement, will hisbalance sheet be incorrect? How about his statement of cash flows?What will happen to next year’s income: will it be higher or lowerthan it should be?
What would happen to your former teacher if he gave the bankthe fraudulent financial statements and the bank discovered thetruth? How could the bank learn the truth?

Answer & Explanation Solved by verified expert

4.4 Ratings (925 Votes)

in my own word accounting means a systematic way of keeping daily financial recordsthe main purpose of accounting is that it remainds us that what is the current financial situation of mineit is important because it helps us to recordsummarizeclassify our financial data 2 the main difference between managerial and financial accounting is that managerial accounting deals with the management side of the business or organization whereas financial accounting deals with the financial side of the See Answer

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In your own words, how would you define accounting? What isits purpose, and why is it important?Explain the differences between managerial accounting andfinancial accounting.What is an income statement, a balance sheet, and thestatement of owner’s equity?Explain what the accounting equation is and how itworks.Why is it not a good idea to falsify financialstatements?Read the case study below and answer the questions thatfollow:Counting Earnings before They Hatch: You recently ran into oneof your former high school teachers. You were surprised to learnthat he’d left teaching, gone back to school, and, a little morethan a year ago, started a business that creates Web sites forsmall companies. It so happens that he needs a loan to expand hisbusiness, and the bank wants financial statements. When he foundout that you were studying accounting, he asked whether you’d lookover a set of statements that he’d just prepared for his first yearin business. Because you’re anxious to show off your accountingaptitude, you agreed.First, he showed you his income statement. It looked fine:revenues (from designing Web sites) were $94,000, expenses were$86,000, and net income was $8,000. When you observed how unusualit was that he’d earned a profit in his first year, he seemed alittle uneasy.“Well,” he confessed, “I fudged a little when I prepared thestatements. Otherwise, I’d never get the loan.”He admitted that $10,000 of the fees shown on the incomestatement was for work he’d recently started doing for a client(who happened to be in big trouble with the IRS). “It isn’t like Iwon’t be earning the money,” he explained. “I’m just counting it alittle early. It was easy to do. I just added $10,000 to myrevenues and recorded an accounts receivable for the sameamount.”You quickly did the math: without the $10,000 payment for theclient in question, his profit of $8,000 would become a loss of$2,000 (revenues of $84,000 less expenses of $86,000).As your former teacher turned to get his balance sheet, yourealized that, as his accountant, you had to decide what you’dadvise him to do. The decision is troublesome because you agreethat if he changes the income statement to reflect the realsituation, he won’t get the bank loan.What did you decide to do, and why?Assuming that he doesn’t change the income statement, will hisbalance sheet be incorrect? How about his statement of cash flows?What will happen to next year’s income: will it be higher or lowerthan it should be?What would happen to your former teacher if he gave the bankthe fraudulent financial statements and the bank discovered thetruth? How could the bank learn the truth?