The balance sheet connects to income statements, in turn also connected to cash flow statement. Occurrences or a change to the net cash activities of the cash flow statement affects the balance sheet. The balance sheet is useful when estimating the potential of the organization in order for them to achieve there long-term mission. However, cash flow statement displays the exchange of currency among an organization and external agents. For example, the cash flow can be affected when the company purchases products, and if the costs of the products are an outstanding amount in turn it will affect the assets on the balance sheet.
The components of the statement of cash flow shows how changes in balance sheet and income accounts affect cash and cash equivalents, and breaks the analysis down into operating, investing, and financing activities. The statement shows the current operating results for a period of time. These details are reflected in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. o Which financial statement is the most important?
The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. Because Ratio Analysis is based upon Accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further Profitability.
This would be important for accounts receivable - money that is owed by a customer for products/services. Representing a company in small claims court requires one to be familiar with the law and how it relates to accounting practices. In the Mack v. Edenwold Fertilizer Services Ltd. case, if Mack had a knowledgeable accountant that was familiar with the law, he may have been advised not to sue as the illegality of the situation would have resulted in a loss. In turn, this advise would have saved Mack both time and
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.
ACCOUNTING 256 FIRST MIDTERM Review Problems Multiple Choice—Choose the best answer. Managerial accounting is concerned with: The company as a whole, rather than with the segments of a company. The data needs of stockholders and creditors. The relevance and flexibility of data rather than precision. Meeting the requirements of generally accepted accounting principles.
The four financial statements therefore assist them to determine if their resources are being put into efficient use since this provides an indication of whether there is any risk they will end up losing the invested funds (Debarshi, 2011). Potential shareholders also rely on the financial statements to make a comparison of the performance of different entities before making important investment decisions (Taparia, 2004). Creditors Creditors supply goods and services to businesses on credit. They are mainly concerned with the liquidity of the firm and its ability to meet their obligations when they are due (Debarshi, 2011). They therefore rely on the balance sheet and income statement to determine the profitability and liquidity levels of different firms in order to make well grounded decisions relating to whether to go ahead and advance them goods and materials on credit (Debarshi,
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.
Floating point numbers can introduce rounding errors in the banking industry, which may lead to financial benefit for the bank but not for the customer. Analyze the ethics of knowingly benefitting from rounding errors. Propose a plan on how the rounding error should be handled. 7. Differentiate between the exponential format and the floating point format in terms of: * Format * Processing speed *
Why or why not? Week 2 DQs Financial statements are an important product of the accounting process. Provide an example of an internal user. How could he or she be harmed by fraudulent and unethical financial statements? Financial statements are an important product of the accounting process.