And so wellbeing and growth of business depends on how much of financial sources businesses obtain. Businesses require finance to: * To open a company (rent/buy premises, marketing, stock, to buy equipment/machinery etc.) * To operate a company (employees’ wages, to buy more stock, pay for insurance etc.) * To grow a company (open a new branch, export products to other countries etc.) Types of financial sources There are two types of financial sources available for a business: * Internal sources * External sources In addition, they are categorized into short, medium and long term sources of finance: * Short-term: must be paid back within a year.
The income statement is important because it will show whether the company’s revenue exceeded expenses for a specific period resulting in net income or the amount the company may have lost because the expenses exceeded the revenue. The retained earnings statement is equally important because it will indicate the exact reason why the company’s retained earnings increased or decreased over the reporting period. The balance sheet is important because it is the overview of the company’s financial condition at the time of the reporting period and the statement of cash flow’s is important because “Reporting the sources, uses, and change in cash is useful because investors,creditors, and others want to know what is happening to a company’s most liquid resource.” (Weygandt,
These four basic financial statements are interrelated and consist of: income statement, retained earnings statement, balance sheet, and statement of cash flows. Accounting is an information system using three basics activities which are identify, record, and communicate economic events to interested users. Companies identify economic events relevant to its business. Financial activities are recorded systematically in a chronological order of events to provide history. Recording also will classify and summarize economic events.
A1. Discuss specific budgetary items that raise concern in the budget planning Budget serves two main purposes – planning and control. Budget is used to plan for sales, purchases, production, cash flow and profits. Long term capital budget allows business to plan for major expenses, like new plant development. Another purpose is controlling: controlling expenditures and evaluating performance.
The statement of cash flow tracks all the cash moving in a company during a specific accounting period. There are three categories that are involved in the statement of cash flow. The three categories are operating, investing, and financing. The statement tracks the changes from the starting period of cash flow until the end of the specific period and reconciles the accounting period’s cash
| b. | Commercial paper issued to finance inventory. | c. | Current maturities of long term debt. | d. | Accounts receivable generated by sales on credit. | e. | Inventory purchased with cash.
P7 Solvency is when a business is able to pay is expenses as it has money available within the business. To determine solvency, businesses can use ratios such as current ratio and acid test ratio. These ratios allow businesses and potential investors to see how well that are able to meet their liabilities. Current Assets Current ratio = Current liabilities The acid test ratio shows the assets compared to liabilities, like the current ratio, but by taking out the stock figure from the current assets, it shows how well a business can meet its liabilities without having to sell stock, Current assets - stock Acid test ratio = Current liabilities Profitability Ratios can also show how profitable a business really is either as a snapshot or over time. There are three ways of working out how profitable a business really is: * Gross profit percentage – This calculation shows gross profit as a percentage of the turnover.
Substantive Procedures for Cash Outflow Irregularities ACC/566 Forensic Accounting September 13, 2014 Businesses have goals that include making a profit. In order to have a profitable business, it must be one that offers goods and services that are appealing to the people. When this occurs, there is a demand for the products and services and in some cases a need. Because the financial industry has its ups and downs, businesses must comply with certain rules and regulations in order to stay in business. Not only should they adhere to these guidelines and laws set forth, but they must internally protect their assets or prized possessions in order to continue the inflow of prosperity.
The prepaid capacity was used to cover the true nature of the expenditures, moving large amounts from the income statement to the balance sheet (Mintz & Morris, 2011). Evaluate in Terms of the AICPA Code According to Mintz and Morris (2011), “the AICPA Code of Professional Conduct six principles are responsibilities, the public interest, integrity, objectivity and independence, due
Capital is used to generate income, capital, or money is used to make investments that will generate more income. Capital is also obtained by selling stocks which is monies used to build the business or for operations aka working capital Debt: monies owed. Debt is what is borrowed and be repaid. Loans, a debt security is one form a debt and the issuance of bonds is another form of debt Yield: is simply a return on an investment. Yield are expressed in percentages designating the amount expected to receive on an investment in the form of interest and/or