Accounting Research: Advantages of Cash Flow

1720 WordsFeb 21, 20137 Pages
Advantages of Cash flow * Cash flow is more “direct” as “profit” is highly dependent on accounting conventions and concepts/principles * Cash flow reporting satisfies the needs of all users better since cash flow is more direct with its messages. Some of the interested user parties are: * Creditors -repayment of debts, overdue accounts * Management -cash flow reporting provides the type of information which decision should be taken re: relevant costs ( decision based on future cash flow) * Shareholders & Auditors -cash flow accounting and reporting can provide a satisfactory basis for stewardship accounting * Workers/staff needs to know that they are able to be paid for their wages & salaries and the…show more content…
Social and Ethical Issues of Financial Reporting Socially: Financial Reporting must be correct so that the shareholders can profit the most from the information and the distribution of goods to the public can be maximized. Ethically: Financial Reporting must be correct so that you can live with yourself...if you do not report correct information you can go live with some really bad people that drop their soap in the shower to see if you pick it up for them. Impact of inflation on assets in financial statements prepared under historical basis Under this type of accounting, assets and liabilities are recorded at their values when first acquired. They are not then generally restated for changes in values. Costs recorded in the Income Statement are based on the historical cost of items sold or used, rather than their replacement costs. Limitations of financial statements Financial statements are based on historical costs and as such the impact of price level changes is completely ignored. They are interim reports. The basic nature of financial statements is historic. These statements are neither complete nor exact. They reflect only monetary transactions of a business. The following limitations may be noted: 1. the financial position of a business concern is affected by several factors-economic, social and financial, but financial factors are being recorded in these financial statements. Economic and social
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