From an accounting prospective, the major problem with the calculations mentioned in the article is determining the rate of return and length of the marketing investment. While the initial value of the “investment”, i.e. marketing expense, can be easily determined, determining the real value after the investment has been made has the potential to be biased without a commonly used measurement. The value of the investment could also fluctuate from year to year based on the companies’ profitability even though marketing had not direct
The two main method of recording accounting transaction are cash basis and accrual basis accounting. Cash basis and accrual basis have their advantages and disadvantages, but only one method is approved by Generally Accepted Accounting Principles (GAAP).The difference between accrual and cash basis accounting has to do with the time frame in which revenues and expenses are recorded and reported. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. The accrual basis allows the business to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). Accrual basis on accounting is the method of accounting that most business and professionals are required to use by law because of its matching principles.
It is useful when trying to see at what prices a large quantity of stock are trading outside the market in a merger. 4. No. DFA believed in efficient market theory, which implied that the price had already reflected all of the market information. So it was not necessary to do fundamental analysis.
It appears not to be the case. Some could argue that the interest rates are not sensitive to the demand for money. Would an upward sloping LM curve still be applicable?. Explain your reasoning. The LM curve would not be applicable seeing as though the decision to reduce the federal funds is a monetary policy affect the IS curve solely.
They typically use this method because it requires fewer journal entries for closing an accounting period and creating financial statements. I feel this method only gives the owner or company a view on the cash coming in and out but does not give the company a long term view on the overhead cost and revenue for services in order to show the company where improvements can be made or where costs
This stands in sharp contrast to the early view of Miller and Modigliani (1958), who argued that in a well-functioning efficient market without taxes, informational asymmetries, and default costs no financial synergy can be found because the market value of company does not depend on its capital structure. However, a firm’s capital structure decision can matter if these assumptions are not true. The theory has two important caveats concerning its applicability; first, one of the merging firms must be experiencing financial distress. The theory is most directly applicable to marginally profitable start-up companies and existing companies that are financially distressed. Second, theory only applies when severe agency problems exist between the manager and the claim holders of the distressed firm.
Loyalty points program PDL operates a loyalty points program, which will impact on the measurement of sales revenue, important for analysts. Currently, a sale transaction with point value attached is recognized as a sale entirely in the current period. An expense and liability for the expected cost – not sales value – of goods to be redeemed in the future is recognized in the same time period as the sale. This policy maximizes the sales value recorded with the initial transaction. It does not reflect the substance of the transaction, though, which is that PDL has rendered multiple deliverables in sale: both the initial sale, and the subsequent sale based on points value are being sold.
In identifying the true contribution of the incremental cash flow, several factors must be considered. First, the costs of launching and continuing to operate the project are weighed against any income that the project generates. Assuming that the initial return is greater than the costs of launching and operating the project, a state of positive incremental cash flow exists. This is the ultimate goal for the business, since it serves as a strong indicator that the project is a viable source of revenue and has the potential to be integrated into the basic operations of the company. The cash flow statement should not include interest expense or dividends.
Cash Basis and Accrual Basis Cash basis is an accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are earned and expenses are matched to revenues or the accounting period when they are incurred, rather than paid. The cash basis of accounting is usually followed by individuals and small companies, but is not in compliance with accounting's matching principle. It does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action, sale or purchase, and its result of payment or receipt of money. It is, however, simpler than the accrual basis accounting and quite suitable for small organizations that transact business mainly in cash, which is also called cash accounting.
The reason is the information support by independent documentary evidence. Historical cost accounting figures are based on actual acquisition prices, not merely possible of market values that can be revised to affect the ratio analysis which improve the performance of financial results. That is, historical costs accounting provides an objective view of an entity’s performance. Thus it consider verifiable and reduces the risk of manipulation of figures by management. In contrast, if there is not active market, market value accounting requires the use of estimation subject to uncertain assumptions, personal judgment, and subjective information about future values, such as discount rates and allowance for doubtful accounts.