Uses for Accounting Data
Accounting and Internal Controls
Firms use accounting data in many various ways. For example, they may use data from the income statement to make decisions about salary increases and bonuses. Many companies’ offer quarterly or end year bonuses based on profits. In addition, firms may decide not to offer salary increases if revenue is down.
They may also use the accounting data to make decisions relating to internal controls. For example, if the company’s accounting records show purchases of inventory that does not exist in the warehouse the company may need to investigate employees to find the missing products or what happened to the purchase moneys. If issues like this persist the company may decide to hire security.
Internal controls are the efforts of a firm to create an honest, safe and effective working environment that complies with laws and regulations and creates dependable financial data. (Godwin 2010) The firm identified a problem from their financial reports and established internal controls to rectify the situation.
A cash equivalent is anything that can be turned into a known amount of cash in a short period time. (Godwin 2010) Since the inventory can be returned to the store for the cash, or even turned into an output and sold for cash it is a cash equivalent.
A contingent liability is a liability created from a situation that exists with an uncertain outcome or an outcome that relies on a future event. The theft of inventory is a contingent liability. A liability that only exists if the inventory is stolen or that the internal controls implemented are unsuccessful.
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