Case 3-5 International versus U.S. Standards Discuss the qualitative concept of comparability. In your opinion, would the financial statements of companies operating in one of the foreign countries listed above be comparable to a U.S. company’s financial statements? Explain. The qualitative characteristics attribute to the usefulness of the information provided for users in the financial statements. Comparability is a qualitative characteristic that allows for comparison of accounting information between or among different entities.
United States and other developed economies use two key functions for the financial statements. They provide a way for company management to transfer information about business activities to people outside the company, which helps solve important problems known as information asymmetry. Also, Financial statement information is often included in contracts between the company and other parties (such as lenders or managers) because doing so improves contract efficiency. 2. Managers choose accounting procedures that produce the most accurate picture of the company’s operating performance and financial condition.
Accrual and Cash Basis Accounting Shayla Johnson ACC/290 April 25, 2012 Courtney Wilson Accrual and Cash Basis Accounting Accrual basis and cash basis accounting are two major methods of accounting that are used to keep track of a company’s financial status. The two methods are very different. One is more difficult and more expensive than the other, and only one is recognized and accepted by the generally accepted accounting principles (GAAP). Accrual accounting is a method that recognizes revenue when it is earned, and when it is realized. This means that it is reasonable to expect cash is to be received at a later date, though service has already been performed.
Current ratios show relative amount of working capital, while quick ratios show the amount of quick assets by current liabilities. “Ratio analysis is an important and powerful technique or method, general, used for financial analysis. The purpose of financial analysis is to diagnose the information content in financial statements so as to judge the profitability, financial soundness of the firm, and chalk out the way to improve existing performance.” (Ramagopal, 2008) Duke Energy’s Current ratio is 3.54; this is calculated by current assets, 2,049 million, divided by current liabilities, 578 million. There is no current problem with the liquidity in this company. The quick ratio is .33 and this is calculated by cash and accounts receivable, 1,501,000+ 1,316,000 divided by current liabilities, 8,644,000.
Week 2 Chapter 3 Homework 1. Which of the following statements is CORRECT? Answer: e. An increase in a firm’s debt ratio, with no changes in sales or operating cost, could be expected to lower the profit margin. 2. Companies HD and LD have the same tax rate, sales, total assets, and basic earning power.
This week we learned that companies are required to prepare a statement of cash flows because it gives a more accurate snapshot of the actual cash flow of a company. Financial statements give an overall picture of how much revenue a company is reporting, but high revenue does not guarantee that the company has the ability to pay its bills. The statement of cash flows is a tool designed to help external users make sound economic decisions about the company. The statement of cash flows is divided into three sections: 1) operating activities, 2) investing activities, and financing activities. The operating activities section analyzes the company's flow of cash as it relates to a net loss or net income.
Pro forma financial information is generally used to illustrate the effects of transactions such as business combination, and change in capitalization. There are countless reasons on why companies use pro forma statement in their business, the most significant is the planning and control received when using pro forma. The process of using pro forma statements are less time consuming, they help businesses evaluate and make a better distinction between business plans (Scarborough, Wilson, & Zimmerer, 2009, p. 196). Pro forma statements are an excellent outlet for resources that will help a business forecast expected earnings should the company chose to merge with another company or even if the company wanted to sell off part of it operations (Scarborough, Wilson, & Zimmerer, 2009, p. 196). The pro forma statements are commonly used when applying for a business loan.
Both statements combine to provide a rich picture of a business’ financial performance. That’s the main reason why both financial statements are used altogether to complete the financial analysis of a company. Exhibits 1 and 2 provide Krispy Kreme’s financial statements for fiscal years 2000 through 2004. Their purpose is to provide us with financial data for the company. In order to determine whether Krispy Kreme is healthy or not, we need to analyze the income statement and balance sheet.
Name: Arsalan Anwar Business level 3 Unit 1: P1 Introduction: In this assignment I will be selecting two contrasting business which are going to be Tesco and Oxfam. I will be writing a written report describing their purposes and ownership, to do this I’ll talk about what goods and services they offer and to whom they offer these to. Finally I’ll talk about where they operate and which industrial sector of the economy they operate in. Introduction of Tesco Tesco is a massive company with high revenues, it is also a public limited company (PLC) that means it has limited liability, the meaning of limited liability is that the investor cannot lose more than the amount he has invested within the company intern this means that the investor is not personally responsible for the debts of the company so linking this to Tesco it will mean that if Tesco goes into debt the investors are not responsible to pay it off. The main aim of Tesco is to make profit and the reason it will make profit is because it is a well know and established company which has been trading for many years.
Financial accounting differs from managerial accounting for the reason with financial accounting is used for external users such as investors and creditors. Managerial accounting is for the internal users of a company which can include employees as part of the decision making process. When comparing the financial accounting to managerial accounting you will see that managerial is more flexible with the calculations of cost that deals with the current and future; leaving financial accounting to deal with the past transaction