CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING 1.1 USE, PREPARATION AND CONCEPTS * Use: The information derived from financial accounting is used by managers, investors, bankers, financial analysts and accountants, helping them to learn how to use information effectively and to do their jobs better. This information is essential to accountants for the services they provide. * Preparation: to be effective users of accounting information, people need to know something about how and why the information is prepared. Accountants’ expertise is about the how and why. * Concepts: Users, accountants and accounting form a connected system. The demand for useful information shapes how financial accounting information is prepared. …show more content…
* Credible means that the information in the financial statements appears to be sufficiently trustworthy and competent. Credibility is a relative condition as there is a cost-benefit issue here: attempting to perfect the report is costly and may affect an enterprise’s performance and position if they strived to achieve this perfection. * Periodic means the users can expect report on some regular basis. Usually, the longer the wait, the more solid the information. But imprecision is accepted in return for reports with timely, decision-relevant information.
MAIN GROUPS OF USERS * Owners: individual business owners, individual investors (shareholders), people with quasi-ownership interests. Investors purchase shares in hopes of gaining in two ways: receiving a portion of the company’s profit in dividends, and selling the shares at a later time for a higher price than they paid. * Potential owners: the same sort of people as owners, but do not have funds invested in the enterprise at the moment, but are considering to do so. * Creditors and potential creditors: suppliers, banks, bondholders, employees and others who have lent money to the enterprise, who are owed funds in return for supplying something of value, or who are considering taking on such a role. Creditors do not have the legal control of the enterprise that owners have, but may have a large say
cognizant of the fact that the choices he makes can affect the price a buyer pays
Investors: These are people who invest money into an organisation to obtain a particular number of shares and earn dividends relative to their proportion of investment.
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
Financial accounting is an information-processing system that generates general-purpose reports of financial operations (income statement and statement of cash flows) and financial position (balance sheet) for an organization. It is used by decision makers inside and outside the firm, such as security investors, analysts, and lenders. Adding to this external orientation are external financial reporting requirements determined by law and generally accepted accounting principles.
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:
Internal users (managers, officers, internal auditors, consultants, budget officers, and market researchers) make the strategic and operating decisions of a company.
When this happen or the cash flow is stable it means that this company can be solvent and will meet its cash needs.
The main purpose of financial accounting is to prepare financial reports that provide information about a firm’s performance to external parties such as investors, creditors, and tax authorities. Must be performed according to GAAP (Generally Accepted Accounting Principles) guidelines.
Factors to be considered in determining how income and loss should be divided are: (1) a fixed ratio is easy to apply and it may be an equitable basis in some circumstances; (2) capital balance ratios when the funds invested in the partnership are considered the most critical factor; and (3) salary allowance and/or interest allowance coupled with a fixed ratio. This last approach gives specific recognition to differences that may exist among partners by providing salary allowances for time worked and interest allowances for capital invested. The net income of $36,000 should be divided equally—$18,000 to M. Carson and $18,000 to R. Leno. (a) Account debited: Income Summary; accounts credited: S. McMurray, Capital and F. Kohl, Capital. (b) Account debited: S. McMurray, Drawing; account credited: Cash.
Mr. J owns the mineral rights in a 640-acre tract in Coleman County, Texas. He leases the tract to S&S Company reserving a 1/8 royalty. S&S then makes assignments. Calculate each owner’s share of the first year’s production of 51,200 barrels.
| The "apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.
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.
In this week we are turning our attention towards the remaining major component of the balance sheet – owners’ equity. Like liabilities, owners’ equity represents another form of financing for a business. At first glance, liabilities (capital provided by creditors) and owners’ equity (capital provided by owners or shareholders) may look very different. As we delve deeper into the topic, however, you will
Financial accounting is used to present the financial health of an organization to its external stakeholders. Board of directors, stockholders, financial institutions and other investors are the audience for financial accounting reports. Financial accounting presents a specific period of time in the past and enables the audience to see how the company has performed. Financial accounting reports must be filed on an annual basis, and for publically traded companies, the annual report must be made part of the public record.
Accounting is referred as an art of collecting, classifying, and manipulating financial data for organizations and individuals. It is also used to determine financial stability or financial health of organizations. Accounting is the language of business and figures and is widely used as a means of communication for financial world, without it businesses cannot survive. It is important because it helps in analyzing, decision making, information disclosure and it also helps in finding out the frauds and in avoiding them.