Financial Statements Measure The Liquidity And The Strength Of A Business

An adjusting journal entry or an adjusting entry, involves an income statement account (revenue or expense) along with a balance sheet account (asset or liability) and typically relates to the accounts for accrued expenses, accrued revenue, prepaid expenses and unearned revenue. (Investopedia.com, n.d.) When accounts are not updated to show the correct transactions or a mistake has been made, adjusting entry will provide insight in order to ensure all entries are appropriately recorded. This action will then reflect the accurate amounts of expenses and revenues. Once this is done, a business may close accounts for the ending period.

Separately, the balance sheet reports a company’s financial position while the income statement reports a company’s fiscal year profits and losses. The balance sheet measures a company’s financial position by reporting its assets, liabilities, and owner’s (shareholder’s) equity. The income statement measures a company’s financial performance by reporting its revenues, expenses, and net income/loss. When combined, they serve two vital purposes: (1) expand the accounting equation and (2) enable analysis using ratios to determine industry position or potential material misstatements. The increase or decrease in owner’s (shareholder’s) equity on the balance sheet is a direct result of the net

The accounting equation is, Assets are equal to Liabilities plus Stockholders’ Equity. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of a business. Stockholders’ equity represents the claims of owners on the assets of the business. This equity is divided into two parts: common stock and retained earnings. The balance sheet reports assets and claims to assets at one specific point in time. Claims to assets are subdivided into two categories: claims of creditors and claims of owners. The accounting equation must always balance. Each transaction has a dual effect on the equation. As an example if an individual asset is increased,

Management must make estimates about uncollected receivables when analyzing the adequacy of the company’s allowance for doubtful accounts. This is done by evaluating the business’ account receivables, customer concentrations, historical debts, customer creditworthiness, current economic trends, and changes in its

When an account receivable is determined to be uncollectable it is no longer qualified as an asset and should be written off. A write off reduced the balance of the customers

First, the percentage of receivables method, also known as the balance sheet method, will be discussed. This method derives its name from the fact that a balance sheet account is used to estimate the percentage of uncollectible receivables. Even though the estimate comes from the accounts receivable account, two methods are used to establish the estimated amount used. One way is to use a certain percentage of the entire accounts receivable balance based on past experience of what has historically been collected. The second common way to arrive at the estimated amount is to base it on the aging schedule. For example, one percentage amount would be used for current billings, a second percentage amount would be used for amounts that are over 30 days but less

D) has no effect on net income.2.Echo Company's 2011 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively. During 2011, the company's sales (all on credit) amounted to $857,250. Per Echo's 2011 cash flow statement, $873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was , the ending balance in this account must be A) $15,000

Credit is granted to customers including credit limit and payments according to the customers’ financial performance. The company utilizes multiple lines of credit to increase the collectability of its certain accounts. According to GAAP, based on the assessment of the loans if the loans are received after the period, management has the capability to hold receivables until maturity or payoff. However, the amount due on the loans minus the allowance for doubtful accounts is the net on compiled balance sheet.

The financial condition of a company as reported in the company’s financial statements for a period gives company management the information needed to make vital business decisions including the decision to expand in nature or how to determine industry trends in nature by using a trend analysis. In this paper, I will discuss Landry’s Restaurants management assessments of the financial condition and explain whether or not those assessments agree with my previous assessments supported by a trend analysis. I will also discuss management’s concerns and identify and recommend a course of action for weaknesses not discussed by management.

Assets, liabilities, expenses, and revenues are the four areas that are tracked on the four basic financial statements. To start tracking these four areas, an accountant would start with the balance sheet. The balance sheet is used to give a preview of a particular time period of how much a company owns and what it owes. The balance sheet details the balance of the company’s income and expenditure over the specific time period. Assets such as cash, property, and inventory are detailed on one side while liabilities such as accounts payable and long-term debt are listed on the opposite side of the balance sheet (Kimmel & Weygandt, ,2010). The income statement measures a company’s financial performance over a specific period of time. Revenues and expenses are assessed with a summary through operating and non-operating expenses. A net profit or loss is also shown on the balance sheet and is typically shown for a fiscal quarter or year (Kimmel & Weygandt,

Deciding what amount of liquid assets is suitable for a nonprofit organization is a loaded and potentially changing thought process. The appropriate level of cash, or liquid assets, is dependent on a variety of items such as the age of the organization, the financial history, risks associated with the group, and the revenue sources and reliability throughout the year. There is no magic formula to decipher the precise monetary amount advised, but a look into the company’s financial documents, how their money is spent and their prospective future dealings can help financial managers create at least an estimation. Understanding the link between the goals of the organization and its financial viability could help the nonprofit group develop both their long-term and short-term goals and the impact on the overall success (Sontag-Padilla, Staplefoote, & Gonzalez Morganti, 2012) . Viability, in this sense, is the success in maintaining the proper financial condition to remain afloat throughout the organization year.

Berry also stated, “That corporate owners ' equity statements go into detail about stock sales, retained earnings and long term investments held by the company” (Berry, 2006). Financial statements also investigate into pension liabilities and capital gains/losses on liquid investments (Berry, 2006). Berry stated “small business owners ' equity statements are much less complicated than their corporate counterparts” (Berry, 2006). According to Berry (2006), a statement for a small business can detail any changes in the balance of cash accounts on which company owners have the right to withdrawal, showing the net increase or decrease in the balance for the period in question (Berry, 2006).

Any successful business the owners is always calculate the performance of the company, comparing it with the company 's historical figures, with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of your company 's effectiveness, however, I will calculate the statement of financial performance and statement of financial position, so I need to look at more than just easily attainable numbers like sales, profits, and total assets. I must be able to read between the lines of the financial statements and make the seemingly inconsequential numbers accessible and comprehensible.

Assets in the financial statement are always required and show useful information to investors and understand where the information comes from. For instance, accounts receivable net which the organization does not expect to collect all of the money it is due from all patients and insurers, (Finkler, S.A., Ward, D.M. & Calabrese, I.D., 2013). The bad debts become about of the money due. Furthermore, accounts receivables, net represents gross charges less an allowance for poor debts, and many contractual allowances established with those third party payers. Typically, an example of a bad debt would show charges of a large sum of money delivered from a hospital. Then, the contractual allowances from

A quite different line of argument may suggest there is a positive relationship between liquidity and investment. The firm may act as if it has past pattern of receipts or assets that has allowed it to keep a low ratio of liquid to capital asset. In such cases firms will invest low