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.
The financing activities section analyzes the company's flow of cash from its financing activities. This includes paying bank loans, borrowing from a bank, and any cash that was collected from selling bonds or stocks. While researching for our answers to discussion question two this week, we learned about some common ratios used to analyze financial information; Liquidity Ratios, Profitability Ratios, and Solvency Ratios. We also learned which ratios helped determine specific managerial decisions, each of them. Each ratio used by any company is just as important as the next.
This allows the company to meet its short term debt and operational needs. Two areas that, when properly managed, can help a company ensure maximized levels of working capital are inventory and receivables management. These are the two primary areas that absorb cash and keep it tied up. When cash is tied up it cannot but utilized to make money and increase working capital. According to D’Addario, ”Inventory accounts for 43% of excess working capital” (2013).
Also, it may then be used in planning short-term credit needs, communicating, controlling and coordinating various activities, motivating and evaluating employee’s performance. In today’s financial world, businesses are required by most financial institutions to prepare cash budgets before making capital expenditures for new assets as well as for expenditures associated with any planned expansion. The
The inefficiency of investment managers, bankers, and financial analysts as they seek to compare financial reporting drawn up in accordance with different sets of accounting standards. Instructions (a) What is the International Accounting Standards Board? The International Accounting Standard Board is an independent organization who issues the International Financial Reporting Standards. The IASB is responsible to maintain the financial reporting compatible for most of the foreign exchanges and markets. (b) What stakeholders might benefit from the use of International Accounting Standards?
Describe how the U.S. financial markets impact the economy, businesses, and individuals. The U.S financial markets impact the economy, businesses, and individuals by, helping to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services. The combination of well-developed financial markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of borrowers and lenders and therefore the overall economy. (Ronald W. MelIcher, 2011) Explain the role of the U.S. Federal Reserve, the Federal Reserve Chairman, and Board, indicating its effectiveness in today’s economic environment. The Role of the U.S Federal Reserve, the Chairman, and board is to save financial institutions that are too big to fail, and to employ unconventional facilities in lending to make sure the world economy does not fall.
The goal of the bank is to create a flow of funds so from the many deposits, the bank can lend out to a wide variety of borrowers and this creates the flow of funds, which is crucial in the banking system. In order for the bank to generate a profit they need their money to be put to work through earning interest. Therefore when it comes to the assets of the bank, cash plays a very minimal role because the banks main interest is earning assets so it keeps its money in loans and investments. Loans represent the majority of a bank’s assets. A bank can normally earn a higher interest rate on loans than on securities, roughly 6%-8%.
Objectively, one may view Cash Connections business model as both ethical and beneficial to society overall, as it has offered large contributions to the economic well-being of the nation and its individual citizens. Evidence shows that in 2007, the payday loan industry input over $10 billion to the U.S. GDP and created 155,000 jobs nationally. Furthermore, it offered $44 billion in credit to consumers in the United States, offering generous and substantial loans to its borrowers. This allowed for a growth in the economy as a whole, as well as remedying the immediate needs of an entire nation. Clients that are aware of the financial implications involved
In return, the bank uses the deposits for lending activities to earn a profit. It gives banks a great societal and economical responsibility, as they do not strictly save the deposits until withdrawal. In contrast to non-financial firms, bank governance is characterized by the duality of shareholders and other stakeholders. In general, the group of shareholders control the firm, while the other stakeholders make up the body that can be seen as the customers of the bank. These other stakeholders include creditors (of which a majority are depositors), the deposit insurance agency and the government (Laeven, 2003, p. 1).
It also helps determine the amount of money available at the end of the business’s financial period which may be used for a subsequent period’s investment. Advantages of the income and cash flow statements. One advantages of the income and cash flow statement they are used to measure the level of performance of the business. Increased levels of profit derived from the income statement and an increased level of cash flows as shown by the cash flow statement are taken to mean that the business is performing well. The vice versa is also true.