Economic and financial decisions are made based on Financial Statements. Financial statement is a statement where it records all the financial activities and position status of a company, person or an entity. In order to ensure that statements are useful, it follows certain framework which are based on accounting principles. Accrual accounting and Going Concern Concept accounting are the two accounting principles amongst various concepts. There are other various accounting concepts such as Consistency Concept, Realisation Concept, Prudence Concept, Business Entity Concept, Materiality Concept, Periodicity Assumption, Historical Cost Principle, Revenue Recognition Principle, Objectivity Concept, Conservatism Concept, Full Disclosure Concept, Cost Benefit Concept. Without these concepts, the rule of accounting will not be visible in making financial statements. It is necessary to have these sorts of concepts so that there can be a proper function in the financial department of any Business. But this document will attempt to explain it’s importance and the pros and cons of only Going Concern and Accrual Basis concepts. The Going Concern concept is an assumption of any Business functions without the possibility of bankruptcy in the forthcoming, future is being predicted no less than the next twelve months. This means the entity does not have any intention or any need to liquidate or restrain significantly the scale of its different operations, and it only exists long
It define the scope of judgment in planning financial statements by formulate the characteristic, activity and restrict of financial accounting and reporting. It also increases different of financial statements by reduce the number of other accounting methods. If standards were come from a reasonable style of concepts. Likewise, reporting requirement will be more constant and fair because they will record accounting base on former set of concepts. Moreover, the setting requirement will be more economical because problem should not be discuss from different position. In additional, it help to reduce accounting common error and political
Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays
The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees.
Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.
For as long as businesses have existed, so has accounting. With time, it has become more complicated and detailed, but it is still a process of keeping financial accounts in order. Through accounting, or financial reporting, a system is set up to keep track of, maintain and audit the financial proceedings. Because accounting and financial reporting of a business is so important for its accuracy and in general, a lot of ethical, technological and legal concerns are involved. In this paper, we will look identify and explore the concerns of each of these.
There are three kind of financial statements for companies which the content reflected different information. Among them, the first is the balance sheet, this statement reflects the financial situation of enterprises. For example, some of the listed companies wants to reflect good financial position in the statement, they will want to increase total assets, decrease accrued total liabilities, and then of course increase owners ' equity, making investors mistakenly believe the company has great investment value, thereby misleading public opinion and investors. Beside the balance sheet the other two financial statements are the income statement and cash flow statement. These two statements reflect the business situation of enterprises. The income statement is an important indicator to measure the performance of listed companies, it is closely related to the allotment and the profit. Therefore, in order to increase the profits of listed companies, they will have to Increase revenue, earnings, decrease expenses, costs and losses (Temte, 73). It helped increase tax evasion, embezzlement and other economic criminal activities. A large number of cases being investigated, all related to the accountants making the fake accounting entries. Therefore, the accounting credibility loss has restricted the development of the market economy. In a business, accountant often times handle the tax problem, so if
To over view the knowledge we learnt from accounting theory and practice, the main thing I can conclude that is the tendency of accounting will shift away from technical way to people’s behaviour way. By understanding what should do, we should ask why and how we could improve and change it into a better way. This essay aims to explain how the theoretical material that we learn in lectures can be developed under a real practical manner.
The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).
Financial world is at the pace when the accountants are moving their steps towards fair value accounting, moreover FASB and IASB is motivating accountants to increase the use of fair value accounting by establishing new rules. Most of the people concur that fair values are the most reliable measure for financial assets and liabilities that an entity strongly trades, on the other hand some believes if management wants to hold an asset or liability till their maturity then historical method is best for measuring financial assets.
Each user of the financial statements interprets the information in a different manor. They use the information to determine their interactions with the organization. Management, investors, and employees use the same information from the financial statements but for different purposes. These four basic statements are the fundamentals of accounting which can be much more detail and complex. They do not need to be more complex for the users of the information; these basic statements have all the information needed to make
This essay will begin to look at the main financial statements used by decision makers in businesses today. This essay will go into detail about the income statement and statement of financial position and whether these two statements provide decision makers with their financial information adequately. This essay will also include the various advantages and disadvantages of each financial statement as well as describing whom the decision makers are and why financial statements are important to them. A conclusion will be present at the end of this essay to demonstrate an overall view of whether financial statements are beneficial to decision makers.
Accounting is the art of measuring and communicating financial information. To maintain uniformity and consistency in preparing and maintaining books of accounts, certain rules or principles have been evolved. These rules or principles are classified as concepts and conventions. One of the important concept in accounting is “Measurement” (Mattessich, 1977)
Financial Statements basically show the historical performance or record of the company at some previous point of time. By the time when financial statements are made public, changes are many economical areas such as market conditions, currency exchange rate and inflations can change the values of assets and liabilities. In this case there often exist discrepancies between book value of assets and their market values.
“In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the balance sheet date. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, a conclusion that the going concern basis of accounting is appropriate may be reached without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential
(BESSONG, 2012) Study the importance of historical value and fair value cost accounting on reported profit. The study discussed how fair value accounting and historical cost accounting will have effect on the reported profit. However it is said that key objective of any business is to earn profit and it is also equally important to report the profit. Especially it is more important to record profit carefully during inflationary period. However they have study the reported profit and effects of fair and historical value by collecting data from both primary and secondary source. Therefore it is found that historical and fair value both is equally important and both have significant effect on the reported profit. Therefore operating profit of the company is influenced by the amount that is paid for taxes, dividend and depreciation.