ACCOUNTING THEORY AND PRACTICE
By Sanam Maknojia
CASE 9-6
a) Revenue expenditure are for costs incurred that is relative to the current accounting period. Capital expenditure are cost incurred for fixed assets and is expected to benefit either in all future accounting periods or in a limited number of accounting periods. The major difference between revenue expenditure and capital expenditure is related to timing. It involves the recognition of expense and, therefore, determining the earning. Capital expenditures are charged as depreciation expenditure over a long period of time. Whereas, Revenue expenditures are charged to expense in the current period.
If capitalized revenue expenditure is incorrect, it would overstate the current earning and assets but understate the future earning in all the years where that incorrect capitalized cost is amortized. If cost is not amortized then it will discontinue its effect on future earning and current earning and assets would be overstated till the presence of that cost on the books. However, if capital expenditure which is not amortized and is incorrectly expensed, current earnings, assets and retained earnings are understated for all accounting periods in which unamortized cost is present. If an amortizable capital expenditure is incorrectly expensed, current earnings, assets and retained earnings would be understated, and future earnings will become overstated for all accounting periods in which the cost should have been
As noted in Wikipedia Oracle is headquartered in Redwood, California. It was founded in 1977 and is the world's third largest soft wear developer in sales. According to Yahoo Finance Oracle is a multi-faceted operation. Oracle provides a vast amount of services for the internet and computer. It provides cloud applications, IT consulting services, licenses middleware software which includes database and database management. It has 115,000 full time employees and is run by co-founder, CEO Larry Ellison who has been the only CEO of the company since it's inception. Also noted in Wikipedia he is the top paid CEO in the world. In 2013 Oracle
The purpose and goal behind researching the income statements and balance sheets then calculating the ratios is mainly to help creditors and investors make their decisions easier and faster. The way we are presenting our research results helps the investors and creditors make the decision which of the companies is more worthy to invest in or loan money too without taking a risk, and lowering the chances that they will be disappointed by the results of their investment, or in the creditors case they can be almost certain the company they are loaning the money to would be worthy enough of paying the money back without a hassle.
Capital Expenditure are expenses that a company has to do to produce profit for a period of time. Capital Expenditure shows important expenses of cash, designed to show the return. So its play important role in Budget, so company keeps in record how much profit on investment can generate.
19. The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:
When this happen or the cash flow is stable it means that this company can be solvent and will meet its cash needs.
If I was going to prepare a capital expenditure budget request to add a retail pharmacy in the hospital my first choice of two individuals I want on my team is the manager over the hospital current pharmacy. They would have general knowledge based on the hospital patients what illnesses and medicines are common to deal with and give us a valuable perspective on costs, space and displays. In our text (Smith, 2014) " The manager of the hospital pharmacy can control the number of pharmacists and technicians employed relative to patient volume and technicians employed relative to patient volume and the expense for the management of the pharmacy. All of the factors I mentioned is important with establishing a capital expenditure budget. The other
Differentiate between accrual accounting and cash basis. Based on the type of business and the client’s accounting system, what is the impact when revenue is recognized?
The second category for adjusting entries is for accruals. Preceding the entry adjustments the revenue account or the expense account are understated. Consequently the entry adjustment for accruals increases the balance sheet and income statement account. Accrued revenue is accumulated revenue that is not recorded at the statement date because revenue is accrued with passing time, which is impractical to record daily. The adjusting entry records the amount owed to a business at the balance sheet date and the revenue earned in that time. The adjusting entry increases both the revenue account and the asset account. If services provided to client that were not billed will not be recorded. The accrual of unrecorded service account increases accounts receivable, which also increases stockholder equity by increasing revenue account. It would be unethical for a company to backdate sales or accounts receivable to increase revenue and
Because more categories and more refining provide more accurate information, but it is really difficult and costly to track more categories. The best option is to simplify the categories, in result, reducing the cost of ABC system.
For authoritative guidance on accounting rules, one must turn to the Financial Accounting Standard Board’s Codification. Since 2009, FASB has arranged the generally accepted accounting principles (GAAP) into an easier to access format, known as the Codification. One of these pronouncements is FASB 235- Notes to Financial Statements (FASB, ASC 235-10, 2009). In this pronouncement, the overall required structure of disclosure notes is discussed.
It is probably safe to assume that most households run on a budget and some amount of forecasting, as there are many individuals who might not have an unlimited supply of money. Decisions are made about paying household bills in relation to the income that has been generated. Then comes a point in time when one realizes a need to invest in a home improvement project, this results in an analysis of the finances such as, the expense and benefit of the project. Company’s do the same thing except on a much larger scale. Individuals within a company have to take into consideration some of the same things when determining if a project is applicable. This includes, revenue and expenses, in conjunction with the company’s fixed assets, all of which, assists in creating a budget and forecast of the company’s project’s potential cost and benefit, this analysis is known as capital budgeting. Authors Besley & Brigham of the text book CFIN 4, 4th Edition explain, “Thus, the capital budget is an outline of planned expenditures on fixed assets, and capital budgeting is the process of analyzing projects and deciding (1) which are acceptable investments and (2) which should actually be purchased.” (Besley & Brigham, 2015, pg. 145). Creating a capital budget and forecast that is as close as possible to the realized impact is essential, it should illustrate a true picture of investments anticipated outcome, review the below scenario and see how this concept can quickly change under pressure.
In the accounting analysis part, we will discuss and analyse SUL’s accounting policy by identifying its key accounting policies, assessing the accounting flexibility, evaluating the accounting strategy, evaluating the quality of disclosure, identifying red flags and undoing accounting distortions to evaluate that if SUL’s financial statement is transparent and not misleading. Also, we will compare these elements to its competitors in order to give investors a clearer vision of its accounting quality.
This paper explains different types of accounting phrases and how they directly affect the accounting field. Phrases which are included and defined in the paper are Generally Accepted Accounting Principles, Contra-Asset Accounts, Historical Cost, Accrual Basis vs. Cash Basis Accounting, and Accounting Standards Codification. Definitions and examples of these terms are included as well as explanations of how they are important to financial statements. The financial statements of Samsung, Lockheed Martin and RTL Group will also be examined. Their financial data will be dissected in order to understand their success and highlight their operating activities.
Part II. The following two questions relate to heritage assets and biological assets (65 marks)
If there is a reduction in the benefit plan, there is a decrease in the defined benefit obligation. The amount if past service costs is calculated by an actuary, and add or deduct to the beginning balance of the obligation for calculation of interest cost for the year.