Accounting Basic Theory

Adjusting entries are journal entries that adjust accounts to the correct balances. Accrual accounting records revenues and expenses when they are earned or incurred. Sometimes adjusting entries need to be made to adjust for unearned service revenue or depreciation expenses. The adjusting entries will correctly balance accounts and correct any understatement or overstatement in the revenue or expense accounts. If the adjusting entries are not made it can overstate or understate net income and completely misrepresent the financial statements. The fifth step in the accounting cycle is preparing an adjusted trial balance. Once all of the accounts have been adjusted, the balanced totals can be transferred over to the adjusted trial balance. The adjusted trial balance should give an accurate balance on all accounts. After completing the adjusted trial balance, the next step in the accounting cycle is preparing the financial statements. The totals from the adjusted trial balance will be used to prepare each financial statement. The seventh step is posting closing entries. Closing entries are journal entries that close revenues, expenses, and dividends. In order to close these accounts, the total balance needs to be entered into the opposite column of the accounts to zero them out. For instance, service revenue would be debited and retained earnings would be credited. All expense accounts and dividends would

According to Financial and Managerial Accounting, the accounting cycle is the approach companies use to create their financial statements

E1-5 Cougar’s Accounting Services provides low – cost tax advice and preparation to those with financial need. At the end of the current period, the company reports the following amounts: Asset – 19000; Liabilities – 15000; Revenues – 28000; Expenses = 33000

The first recommendation would be to change the Sales on Account terms to increase the amount of cash available for the same budget month. Providing discounts to customers that pay within 30 days would help support on time payment and additional operating cash flow for the current and following month. The second recommendation would be change their Accounts Payable terms to net 60 and pay half in the first month and the second installment in the following month. This will decrease the month-over-month Cash Outflow.

New accounting rules will affect the company’s revenue recognition in the upcoming year. Many companies such as Rolls-Royce Holdings will be affected by this change. Rolls-Royce Holdings books its revenues even before its services performed. For instance, they sell large engines and maintenance service, and Rolls-Royce Holdings booked the revenue even 1.5 years in advance. They will no longer able to book this unperformed revenues for the upcoming year. The investors will have a better picture on the firm’s revenues based on the new revenue recognition. Some sectors, such as telecommunications, media and pharmaceuticals, are expected to be affected more than others, because the firms recognize revenues before they perform the services. Moreover,

The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of April is

According to WebFinance, Inc., the definition of disclosure, in relation to accounting practices, regards “Statutory or good faith revelation of a material fact (or an item of information that is not generally known) on a financial statement or in the accompanying notes (footnotes)” (2015). Furthermore, as per the Financial Accounting Standards Board [FASB], “The purpose of the notes to financial statements is to supplement or further explain the information on the face of the financial statements by providing information relevant to existing and potential investors, lenders, and other creditors . . .” (2013, p. 1). Publicly traded companies fall under regulations that are set forth by governing authorities to assist in bringing concise information to external users. The Starbucks Corporation [SBUX] implements the disclosing of pertinent information in its annual report by expanding within the section named “Notes to Consolidated Financial Statements” (SBUX, 2014, p. 51). The company’s cash and its equivalents, receivables, and inventories are further explained according to data as provided by SBUX.

11. Accounts receivable turnover and days sales in accounts receivable for the last three years:

| This ratio measures a company’s ability to meet its short-term obligations with its most liquid assets, which is why inventory is omitted.

The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity

The short-term solvency ratio is a measurement used to measure how well a company is able to meet debt obligations.

On 1 July 2011, Kookaburra Ltd acquired an item of plant at a cost of $200 000. The plant has an

Nowadays, as our economy is facing possible everyday crises, managers undergo an increasing pressure in order to keep their company 's earnings stable. Shareholders and analysts expect companies to meet forecasted goals and not to deviate from these. Especially, reliable companies are to report positive results and shall not present any 'surprises '. Managers therefore often turn to their accounting departments for help, whose job it then is to improve the bottom line by changing the information shown in financial

Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.

By: Charn Gek Cheng, Chiang Soo Ling, Kummar Sokali Muthu Mogan, Lee Siew Fen Samantha