...Financial Statement Differentiation Financial Statement Differentiation In our text Accounting: Tools for business decision making authors Kimmel, Weygandt, and Kieso (2009) stated that “Success in business requires making countless decisions, and decisions require financial information.” This reflects the perfect definition for financial statements and what their sole purpose is. Financial Statements summarize the financial condition or health of a company. For this paper, one will look at each of the four financial statements and discuss the information they provide. Then the internal and external users of financial statements will be addressed along with the main interests of each of these users. Income Statement An income statement is used to report whether a company is making a profit or loss. This is the determining factor in a company being successful or not. The income statement reports the company’s revenues and expenses over a specific period of time. The format of the income statement begins with the time period listed, and then the revenues and expenses are listed. The net income for the company is then determined by subtracting the expenses from the revenues. (Kimmel, Weygandt, & Kieso, 2009) Balance Sheet The balance sheet illustrates the company’s assets and liabilities. That is, what the company owns and owes. It also shows the stockholders’ equity. The balance sheet, as its name suggests must have the same balance for assets and liabilities...
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...Financial Statements Accounting is the financial information systems used to determine how a company is doing financially and report numbers that provide insights so a company can make smart business financial decisions. The individual who is responsible for the business accounting compiles a complete record on different financial activities of the business. He or she analyzes the financial statements, trends, and insights into the business financial decisions and ensures this information is correct. The four financial statements are income statements, retained earnings statement, statement of cash flow, and the balance sheet. The income statement provides information on profit and losses, which gives a summary of the company financial performance, usually for a specific period, a month, quarter, or one year. The summary outlines the company operation and “non” operation financial performance on how the company incurs revenues, expenses, gains, and losses by deducting expenses from revenues (Tennent, 2008). The company income statement is vital because this information determine whether the business is over or under budget for that specific period. When a company during normal operation does not make a profit at the bottom of the income statement will state net loss for that period. When the company is doing well and making a profit, the bottom of the income statement will indicate a net income. The income statement information under revenues is service revenue, the next...
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...and it gives them the ability to make decisions in relation to the company. A certain amount of urgency should exist when providing this useful information because the financial statements are considered to be a powerful and commonly used tool. The most commonly used of all the financial statements would be the income statement because it can be used to examine the profits and losses of a company. Many users do also find that the balance sheets and cash flow statements just as useful in the decision making process. The following will include the analysis of Home Depot’s annual report by examining the income statement, balance sheet, and cash flow statement and looking at how they can help with business decisions. The Consolidated Statements of Earnings, the income statement, tells the user about the sales and expenses of Home Deport during each fiscal year. Analyzing the income statement for Home Depot, it appears that the company had strong sales numbers of over $71 billion each year. Even though the company was able to keep sales over $71 billion, it is noticeable that the sales and gross profits declined from 2007 to 2009 (The Home Depot, 2009). It also seems that an increase in expenses over the years may have contributed to the drop in sales. Another contribution could have been the decline in residential construction and home improvement markets. The income statement is important because it shows the worth of the company and it also shows users the company’s...
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...Differentiation of Financial Statements Financial statements provide a snapshot of a company. These statements are used to make financial decisions concerning company operations, acquiring business credit, and investment choices. Commonly reviewed statements include balance sheet, income statement, statement of cash flows, and retained earnings statement. Each statement provides unique information used for financial decision making. Balance Sheet The balance sheet describes a business on a specific date and has three sections: assets, liabilities, and the owner’s equity. Assets are resources held by the company. Cash is the first asset listed. Assets quickly converted to cash are listed next and permanent assets, such as land are listed last. Liabilities are the company’s debts such as accounts payable and salaries payable. Liabilities are listed in the order that they are repaid. Owner’s equity is the owner’s claims on the assets of the business and has two sections: capital stock and retained earnings. The total assets must equal the sum of all the liabilities and owner’s equity. Income Statement The income statement is a lists a company’s revenues and expenses for a period of time. Revenue is an increase in the company’s assets through its profit-making activities that increase positive cash flow. Expenses are decreases in the company’s assets through its profit-making activities that result in negative cash flow. Net income results if total revenue minus...
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...‘’Earnings management, in exchange listed companies, is not fraud but a case of caveat emptor for investors ‘’ UP708386 ‘’Earnings management, in exchange listed companies, is not fraud but a case of caveat emptor for investors ‘’ UP708386 708386 Corporate governance, Financial Crime, Ethics & Controls for Finance Pathways (U234479) 708386 Corporate governance, Financial Crime, Ethics & Controls for Finance Pathways (U234479) ‘’Earnings management, in exchange listed companies, is not fraud but a case of caveat emptor for investors ‘’ This essay is intended to evaluate different views on a case whether the earnings management in exchange listed companies is consider as a fraud or caveat emptor for investors. One of the first mentions of earnings management has been given by Shipper where she described it as ‘’disclosure management, in the sense of purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain.’’ (Shipper, 1989). In other words the managers are adjusting profits or losses on final accounts to mislead the stakeholders and to encourage them from investing. Earnings management become a problem for investors as it generates fake impression about companies success and misguide them into making wrong investment decisions which often leads to a making a loss. Another problem arises with incorrect financial reporting which is insincere for investors and resulting in making a capital market...
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... According to the authors, Kimmel, Weygandt, and Kieso, of Financial accounting: Tools for business decision making, “we are learning to be financially literate.” Whether we are allowed to view the financial records of our company, we are expected to understand basic accounting principles which teach us of to read financial statements and evaluate those results (p.3). Why are we expected to understand financial statements and the resulting information? Decisions. Being in business requires a lot of decision making almost every day. Some of these decisions rely on financial information. Financial Reports: What are they and Who do they Benefit Financial statements are the accounting system backbone of any organization in their dealing with economic events. They are also used for evaluating performance in many areas. These statements “communication the numbers” (Kimmel, Weygandt, & Kieso, p. 3) of financing, investing, and operating business activities. This paper will identify the four basic financial statements; the purposes of each of the four statements; the internal and external users of this information; and the benefit of these statements to these various users. Financial Statements. In an accounting system, whether prepared manually or electronically, there are four basic statements or reports that are used: The balance sheet, income statement, retained earnings statement, and the statement of income. They are the result of a business’s financing, investing, and...
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...DIVIDEND POLICY AND ITS IMPACT ON SHARE PRICE (ANALYSIS OF SELECTED “A” CLASS LISTED COMPANIES) Submitted By Bijendra Bahadur Malla Roll No.: 740090 Reg. No: 2007-2-22-0056 A Research Report Submitted To Prof. Dr. Prem Raj Pant Apex College Pokhara University In partial fulfillment of requirements for the course on Research Methodology For the degree of Master of Business Administration Kathmandu August, 2009 ACKNOWLEDGEMENTS This Study has been under taken to analysis the “Dividend Policy and its Impact on Share Price (Analysis of selected “A” Class Listed Companies)” under partial fulfillment of the requirement of MBA degree. The thesis mainly covers the dividend policy and its impact on share price of “A” class listed companies of Nepal. I would like to express my deep gratitude to Professor Dr. Prem Raj Pant, for his kind support, advice and continuous support for the thesis writing. I would like to express my deep greet to my respected supervisor, Mr. Pushpa Raj Joshi and Mr. Bharat Singh Thapa for his continuous guidance and supervision. The report in this form is the result of their inspiring and invaluable guidance and supervision. I express sincere thanks to all librarians of Apex College who helped me directly and indirectly in the course of review of literature. Finally, I would like to thank my family and friends for their help, blessings, love and support for me to prepare for the thesis writing. ........…….……........ Bijendra Bdr. Malla ...
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...Telecommunications, and they are trying to maximize earnings for the company. With increased competition from foreign companies, Excello meeting its financial estimates are looking bleak. Failure to meet earnings expectations can reduce the availability of bonuses, stock options and could lessen the value of the company. Because of the threat in not meeting estimated earnings, the company’s CFO Terry Reed has a plan to make one last effort to meet company goals. Terry Reed has knowledge about a sale of $1.2 million to a customer in December 2010 and wants to move the sale quickly. Because of storage issues by the Data Equipment, the sale will have to occur in January 2011 when the buyer will have adequate space to hold the equipment purchased. Terry wants to make the revenue at all costs and will do whatever it takes to make it happen. That type of motivation can create questionable decision making that can potentially violate laws and the AICPA Code of Conduct. Excello Legal Issues The failure to meet earnings estimates are of significant concern for the organization where it will prompt questionable decisions by executives. Excello Telecommunications must adhere to accounting practices and regulations in the organization’s activities to ensure financial reporting is accurate. The SOX Act of 2002, Generally Acceptable Accounting Principles (GAAP), and the AICPA Code of Professional Conduct are some guidelines that the company must follow. However, the pressures of meeting...
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...for the expansion decision, and distinguish between the short run and the long run costs. Recommend the key decision-making criteria that Katrina’s Candies should use for expansion decisions in the short run and in the long run. Provide rationale for your response. Relevant costs are those that are avoidable or can be eliminated by choosing one alternative over another. Relevant costs are also known as differential, or incremental, costs. In general, variable costs are relevant in production decisions because they vary with the level of production. Likewise, fixed costs are generally not relevant, because they typically do not change as production changes. However, variable costs can remain the same between two alternatives, and fixed costs can vary between alternatives. For example, if the direct material cost of a product is the same for two competing designs, the material cost is not a relevant factor in choosing a design. However, other qualitative factors relating to the material, such as durability, may still be relevant. Likewise, fixed costs can be relevant if they vary between alternatives. Consider rent paid for a facility to store inventory. Although the rent is a fixed cost, it is relevant to a decision to reduce inventory storage costs through justin-time production techniques if the cost of the rent can be avoided (by subleasing the space, for example) by choosing one alternative over another. The costs which should be used for decision making are often referred...
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...Differentiation It is difficult to envision investors, creditors, and management making informed decisions sans accurate financial information. Consequently, organizations should use financial statements to communicate their financial stability, cash flows, and operational results with external and internal users. The purpose of this paper is to explain information contained in each of the four financial statements and discuss reasons each statement is of interest to investors, creditors, and management. Literature Review Literature review identified four primary financial statements the accounting process creates. They are the income, retained earnings, balance sheet, and cash flow statement (Kimmel, Weygandt, & Kieso, 2009). According to Albrecht, Stice, Stice, and Swain, (2008), each statement has a unique purpose and interrelates with the others. To decipher a company’s complete financial picture, stakeholders should understand how each statement influences the next (Financial Accounting, 2011). The Four Types of Financial Statements Generally accepted accounting principles (GAAP) require publicly held organizations show their earnings, owner investments - distributions to owners, financial position, and cash flow for a given period (Financial Accounting, 2011). The financial statement that satisfies each of the aforementioned (in order) is the income statement, retained earnings statement, balance statement, and statement of cash flows (Albrecht et al., 2008). ...
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...organizations what is happening financially within the organizations. Accounting shows where the cash is going and where cash is coming from. Accountants analyze and interpret the financial information on the financial statements using ratios and graphs. The information that is being analyzed are comprised into financial statements. The four basic financial statements include; income statement, statement of retained earnings, balance sheet and statement of cash flows. The income statement “presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time” (Weygandt p. 21). The retained earnings statement “summarizes the changes in retained earnings for a specific period of time” (Weygandt p. 21). The balance statement “reports the assets, liabilities, and stockholders’ equity of a company at a specific date” (Weygandt p. 21). The statement of cash flows “summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time” (Weygandt p. 21). The income statement, statement of retained earnings and statement of cash flows all depict a period of time whereas the balance sheet is a depiction of a specific date. All four basic financial statements are interrelated with each other and useful to managers, investors, creditors, and employees. Each of the four financial statements shows relevant financial data to all users. All four financial statements are interrelated. The relationship between each...
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...preferred stock. There are two types of capital paid in capital and earned capital. Paid-in-capital refers to the stocks issued to an investors in exchange for the capital that that the investor is willing to provide to the company. Paid in capital can be referred to as contributed capital which in turn is reported as stockholders’ equity, when a company receives issued shares of stock. Paid-in capital is kept separate from the earned capital in order to avoid any misinterpretation of where the capital comes from. Earned capital referred to as the value of a company’s assets which is accumulated via their money-making operations. This will help to facilitate a clear separation of the operational capital that comes from the profit making operations. The majority of investors will be concerned with the earned capital versus the paid in capital, as the earned capital reflects the earning potential of a company. Owners’ equity is referred to as the vested interest that both common stockholders and preferred stockholders have in a company. Stockholders are the people that have paid-in capital to a company in order to provide funding that is to be used for the operations of a company. It is vital to keep paid-in capital separate from the earned capital of a company. Paid-in capital comes from the sale of capital stock whether it be from the stock markets or in the form of shareholder shares. Earned capital comes from the profits accumulated from the sale of goods and services. Both...
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...Financial Statements Dave Hall ACC/290 Lisa Henderson September 16, 2013 Financial Statements In any business, the financial statements are the backbone of the financial accounting reporting within the business. The four financial statements include the income statement, balance sheet, retained earnings statement and the statement of cash flows (Kimmel, Weygandt & Kieso, 2010). These four statements provide a summary picture of the overall financial health of the company, for the period of time reported, to both internal (managers and employees) and external customers (investors and creditors). The internal and external customers can use the company’s reported financial information to make informed decisions such as investing in the company and loaning funds or providing credit to the company. Income Statement The income statement, also referred to as the profit and loss (P&L) statement, reflects how much money a business has made over a period of time (D&B, 2013). The time period reflected may be monthly, quarterly, semi-annually or annually, and is stated as such in the header of the income statement. The data within the income statement includes revenues (from the sale of the company’s products) and expenses (salaries, rent, depreciation, supplies, etc…). To calculate net income for the time period, expenses are subtracted from revenues, thus totaling net income. The income statement is very important to both internal customers (managers and employees)...
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...monetary resources of an organization. Knowing the financial status of a company enables management to determine uncertainties and make the necessary changes to reduce any risks. The main goal of financial planning is to maximize profit and wealth. To do so a company must effectively control and supervise the firm’s earnings. Hence, cash in versus cash out. If more money is being spent than earned, a company can be heading down a road of destruction. Earnings should be watched closely to ensure no overspending and that a profit is made. Increasing cash flow and profit leads to wealth management; most believe that profit equates wealth. The truth is, profit is short term, while wealth is continuous and wealth is the bottom line of financial goals. Financial management involves three major types of decisions: long-term investment decisions, long-term financing decisions, and working capital management decisions, which are short-term in nature. Financial decision making holds a major bearing on wealth management. An erroneous decision can destroy a company, its investors and stockholders. When embarking onto new financial territories, a manager must take the following into consideration… * Present and projected income earnings * What risks are involved * Working capital Wise decision making will formulate a conducive environment that will generate more profits and revenue, in turn making the owners and investors’ money. A company’s primary objective is to provide...
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...pay self employment tax. The business is will not be independently taxed and any income or lack of income must be reported on the owners tax return. The companies earnings must be taxed as well. Longevity or Continuity of the Organization: Considering most of the Owners funding comes from their personal assets, Sole Proprietors usually have a limited longevity. This can also affect the business’ future growth. Control: The owner is in full control of the company. The owner has all the power in the running of the business. Profit Retention: Legally the company and the owner are the same so any earnings the company makes belongs to the Sole Proprietor. Sole Proprietorships usually leave the owner with the most profit. Location: Sole Proprietorships hardly have any location regulation. Some area laws do require a DBA certificate. This certificate can be obtained through the county clerk’s office typically. Convenience or Burden: a sole proprietor is in full control of the company, selling of, or transferring company ownership is at the owners full discretion. There are no corporate taxes. Investors normally do not invest funds into these companies due to the lack of corporate structure. The proprietor is solely responsible for all the debts of the company. The owner is 100% responsible for the running of the company. General Partnership: Liability: The entire enterprise and all resources are owned and controlled by the owners. Any debts of the enterprise are the...
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