Presentation Of Financial Statements On Accounting Profits

The two approaches have many aspects in common but there are two key differences that distinguish one from the other. The difference in cash accounting and accrual accounting is the way debits and credits are applied in bookkeeping. Cash based accounting recognizes income at the time it is actually received. This means that invoiced income is not counted as an asset until payment for the invoice is received. This approach is also used for debits and any expenses incurred are not posted until they are paid. Small businesses often time use the cash accounting because it is simple and easy. It is important to recognize that this type of accounting can complicate matters when the business is up for sale or a merger is offered. The type of accounting method used in any business should not be assumed.

misleading because all of the fixed overhead has yet to be deducted and the P&L will

Profitability is an important criterion to judge the success of the business. Accounting has a big role in determining business profitability. Using accounting we can maintain proper records of all business dealings, which later on assists in computing business profitability. It is only accounting due to which we can easily make financial statements at the end of each accounting year and find out the profit earned or loss suffered in the business. Thus, Accounting provides us significant information which we further analyze and come up with material conclusion or decision.

When you’re looking at the income statement, you can get information about profitability for a particular period. This is also called the profit and loss statement. The income statement is composed of both income and expenses. This statement can be used to deduct expenses from income and report either a net profit or net loss for that period. This statement will deduct all expenses from income and then report your net profit or net loss for that period. This will allow the business owner to determine if the business is bringing in a good amount of revenue to make a profit. The cash flow statement shows the movement in cash and balance over period. The cash flow can vary depending on the operating activities, investing and financing activities. This statement provides one business owner with insight to the company’s liquidity which is vital to the growth of the business. Reinvesting in business is very important, looking at the statement of retained earnings will tell a business owner how much were reinvested in the company. After profitable period, every big business has to give some of its profits to stockholders, and keep the rest amount as retained earnings. Out of all statements, retaining statement is important to companies that sells stocks to the public. This statement can also provide you with assets and liabilities information. These informations can be used to assess the financial health of your business. The results of a balance sheet will help the business owners to show the risk of liquidity and credit. Looking at these information you can measure trends and relationships to show where in the areas you can improve. These can also be compared to similar companies to show how the business measures up to leading competitors (Ali, 2010). In summary, the financial statements can provide a business owner

Cash flow from operations is a key indicator of a company’s financial health, because without the ability

Increase in assets is a positive successful outcome; however, an increase in liabilities is not a positive unless the company has expanded or upgraded. Regardless, that the assets grew the liabilities increased they are still under asset accumulation but not leaving much net profit, and the liabilities gained too much too fast without explanation. Not a positive for investors and stockholders because liabilities are priority before net is to be paid to council.

While net cash is critical to determine the ability of the organization to meet its immediate requirements, the non-cash factors that are included in the net income calculation portray a more accurate view of the long-term profitability. Also because of the timing differences between when revenue and expenses are recognized, the accrual method behind the net income model will produce visibility that is more accurate. For example, a month that produces low volume of sales and a high volume of receivable could produce a positive cash flow when in reality that low sales volume will negatively affect the subsequent months. This variance would be visible in the net income but would not be visible in net cash.

While cash accounting accurately tracks cash flow, it gives a false impression of revenue and expenses. This method may show a negative cash flow, even though you anticipate receiving payments in the next period.

Stockholders Equity increased over the three year period. Common stock remained steady at $200,000 ($1 par) and so did paid in capital. Retained earnings increased every year, a plus for the bank. Return on total assets, return on common

In order to assess whether the accounting profit is a measure of the true profit it must first

You can better plan and manage cash flow. No business can afford to mismanage cash. And simple profits are rarely the same as cash. A cash flow plan is a great way to tie together educated guesses on sales, costs, expenses, assets you need to buy and debts you have to pay.

The number of shares outstanding will remain the same and thus, the only change in the equity side of the balance sheets for the next three years will be the change in the amount of retained earnings. This change will be equal to the net income of the company for last year because the company will not pay a dividend.

There are many ways to analyze the performance of a company, some more popular than others. According to the Barney text the accounting method is the most popular way of measuring a firm's performance (Barney, 2002). Some of the reasons for the popularity could include the fact that accounting measures of performance are publicly available on many firms and they communicate a great deal of information about a firm's operations. Other methods of performance analysis include firm survival and the multiple stakeholder approach.

      The Statement of Cash flows is a very useful financial statement that can benefit investors, managers and even auditors. The statement of cash flows has not been around as long as the other financial statements such as the balance sheet or income statement. It basically “illustrates the way accounting evolves to meet the requirements of users of financial statements.” (Marshall, 2003) The statement of cash flows is designed to provide important information about the cash that a company has received or has paid out during a certain time period. It provides a reason for the changes of cash received and paid by a company by taking into

Therefore accounting methods are very much important in measuring the profit of the company and company must prepare their finical report by using the fair value and historical cost method simultaneously. However, true financial position of the company or business can be easily calculated by using the accounting methods that are more reliable and accurate. Therefore companies must use both historical and fairly value method to know the actual financial position of the company.