...Question #6 A. Briefly state how the Income Statement is different from the Cash Flow Statement. Give examples of decisions that can be made from the information provided by each of these statements? -The income statement shows how much revenue a company has earned over a period of time, which is usually for a year. The income statement also reports the costs and expenses associated with earning the revenue. At the bottom of the income statement it shows the net inome, which shows the actual earnings after expenses, taxes, etc are taken out. This can be a net profit or net loss, depending on how the company performed that year. The cash flow statement reports a company’s inflows and outflows of cash. The income statement tells whether or not the company made a profit and the statement of cash flows tells you whether the company generated cash. The statement of cash flows is the more important of the two because with negative cash flows it makes it nearly impossible to pay off your debt. It is possible to have a positive net income, with negative cash flows. -A manager can use the income statement to analyze how much revenue is being lost due to expenses. Expenses are necessary in every business, but there are ways to manage them to save money. It also allows management and investors to decide if the company wants to expand into different markets or create new products. If they see sales are consistently increasing year over year, then it may be a good time...
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...The Four Basic Financial Statements By Stain Baba [Course] [Instructor] [Due Date] The Four Basic Financial Statements Managers of businesses can be considered as stewards who have been entrusted with the responsibility of the day to day running of business activities. In this regard, they are expected to report back to those who appointed them and to other relevant stakeholders on how well they have executed their assigned task(s). One of the established ways of reporting to owners of the company and other stakeholders is through the use of financial statements, which can be used to ascertain the level of effectiveness and efficiency with which the managers have handled the affairs of the company and at the same time, give a concise view of the financial health of the company. Financial statements are records of the financial activities of the of a business enterprise or any other entity (Kimmel, Weygandt & Kieso, 2010). The aim of a preparing a financial statement is to track and present the financial activities of a business entity in a way that enables users of such records to as much as possible, understand the financial position of the of the company at any given time.Financial statements include; the balance sheet, income statement, cashflow statement and statements of shareholders equity. These four set of financial statements are considered to be the basic financial statements typically produced by profit making companies (U.S...
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...relationship between the shareholders, who are the owners of the business, and the business and show as a special liability. Relevance: This requires that the figures are meaningful and useful. Objectivity (Reliability): This requires that the information is objective and can be trusted. Feasibility: This means that the information can be collected easily and economically. Duality The duality concept is closely related to the system of double entry book-keeping used for recording the financial information upon which the financial statements are based. Because the duality concept requires the clear identification of both the assets of a business and the claims of different parties on those assets in the balance sheet, it is consistent with the criteria of relevance to users of accounting information. The duality concept also provides a “check” (through the balancing requirement) on the reliability of data provided in the main financial statements. It is therefore broadly consistent with the three criteria of relevance, objectivity and feasibility. Marketable securities: Short term investments – shares or money market deposits Overdraft – Short term bank borrowings Debentures – Loans issued in small denominations but in large numbers Called up share capital – Face value of money put in by ordinary shareholders Share premium account – excess over par value Revaluation reserve – Revaluation of fixed assets...
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...ASSIGMENT : MANAGEMENT ACCOUNTING 1. Financial statements are used to show the (financial) performance of the company and also used as proof of company performance when sourcing for finance from banks, sourcing for finance /funds from (potential) investors. The financial statements are also used for legal compliance dictated from Government financial regulations and standards particularly for Public Limited Companies. Internally within the company, financial statements can be used for control and tracking resources by senior management, shareholders etc. 2. When a company’s assets increases for one period to the next, the liabilities and equity will also increase by the same amount. Also total assets must equal total equity and liabilities because for a business to acquire assets, it must raise the funds from somewhere. As a result, changes that happen in the assets must be compensated elsewhere. 3. No. The capital base for the companies might be different. By just looking at the profits, it does not show how much the companies are financing themselves and also profits does not show the cash flows of the company, i.e. whether the company is really performing well. Also, profits does not show the asset structure and equity performance e.g. earnings per share, dividends per share etc which is also very crucial for investment or financial performance analysis. 4. Other ways of comparing company performance is by using financial ratios and by looking at...
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...Principles (GAAP) and Income Tax Basis Basis of Depreciation 2 Abstract The basic concept of depreciation is based on the assumption that most property, plant, and equipment assets or depreciable assets have a useful life over which they are consumed. The portion of these depreciable assets consumed through usage or obsolescence is what accountant refers to as depreciation. The measurement of depreciation according to Generally Accepted Accounting Principles (GAAP) follow the “cost principle” and “matching principle”; in that depreciable assets cost should be valued at their original or historical cost, and that depreciation expense is recognized in the same period the benefit was derived from the consumption of the said asset. On the other hand, Income Tax Basis follows the concept of “recovery period”; in that businesses recover the cost of the depreciable assets faster because the period (useful life) is accelerated. This paper will compare and contrast Income Tax Basis for depreciation and GAAP basis for depreciation. Basis of Depreciation 3 Basis of Depreciation A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis Depreciation...
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...A Basic guide to finance and accounting This article will explain the importance of finance and accounting in a start-up business and also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels. Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured. An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows. b) Loans from a bank or from family and friends. c) Debentures are loans made to a company. d) A mortgage, which is a special type of loan for buying property where monthly payments...
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...CT2 – P XS – 11 Series X Solutions ActEd Study Materials: 2011 Examinations Subject CT2 Contents Series X Solutions If you think that any pages are missing from this pack, please contact ActEd’s admin team by email at ActEd@bpp.com or by phone on 01235 550005. How to use the Series X Solutions Guidance on how and when to use the Series X Solutions is set out in the Study Guide for the 2011 exams. Important: Copyright Agreement This study material is copyright and is sold for the exclusive use of the purchaser. You may not hire out, lend, give out, sell, store or transmit electronically or photocopy any part of it. You must take care of your material to ensure that it is not used or copied by anybody else. By opening this pack you agree to these conditions. The Actuarial Education Company © IFE: 2011 Examinations All study material produced by ActEd is copyright and is sold for the exclusive use of the purchaser. The copyright is owned by Institute and Faculty Education Limited, a subsidiary of the Faculty and Institute of Actuaries. You may not hire out, lend, give out, sell, store or transmit electronically or photocopy any part of the study material. You must take care of your study material to ensure that it is not used or copied by anybody else. Legal action will be taken if these terms are infringed. In addition, we may seek to take disciplinary action through the profession or through your employer. These conditions remain in force after you...
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...Cash Flow Statement Definitions A financial statement that reflects the inflow of revenue verses the outflow of expenses resulting from operating, investing and financing activities during a specific time period. Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays. Cash flow is determined by looking at three components by which cash enters and leaves a company: core operations, investing and financing. Operations- Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Investing- Investing activities focuses on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long-term assets. It reports changes in equipment, assets or investments relate to cash from investing. Financing- Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the...
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...EFB201 Financial Markets Learning Guide EFB201 Learning Guide 1 Workload Expectations The unit has a two-‐hour lecture with a one-‐hour workshop/tutorial each week. QUT Guidelines are that “Eight to 10 hours per unit per week should be spent outside the classroom reading and working on assignments and tutorial tasks.” This unit covers a large amount of material commensurate with the workload expectations described above. The lectures are an integral part of the course materials and will contain spoken or written material that is additional to that in the textbook and set readings. Conversely, not all the set textbook or other readings will be covered in the lectures. In addition, you will be expected to do your own research in respect of particular topics, and this also forms part of the unit materials. All unit material is assessable; in other words, it is not possible to identify...
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...THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENT ARE REGULATED BY LAWS. REQUIRED: (1) LIST THESE LEGAL PROVISIONS. The constitutional and the regulatory framework of public sector accounting. Public sector accounting is governed by the following regulatory framework; such as: (a) Nigerian constitution: The 1999 constitution of the federal Republic of Nigeria Is one of the legal frameworks that regulate the receipts and pa;yments of public funds. (b) Audit Ordinance of 1956 or Act of 1956: section 13,sub- sections 1-3 mandate the accountant General of the Federation to finish the Auditor- general for the federation with the country’s financial statements. The Auditor- general shall within 60 days of the Accountant – General’s financial statements submit his report to each House of the National Assemble. (c) Finance (control & management) Act of 1958: This governs the management and operation of all government funds. It regulates the accounting system, the books of account to be kept and the procedures to be followed in the preparation of accounts and financial statements. (d) Financial Regulations: these are the accounting manual of the government ministries / Extra ministerial Departments which deals with financial and accounting matters. It set out the procedures and steps to be followed in treating most of government transctions. (e) Finance/ Treasury Circulars: These are administration tools which are used to amend the provisions...
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...Objective Questions and Answers of Financial Management 1. State whether each of the following statements is True (T) or False(F) (i) Financial statements are an important source of information to shareholders and stakeholders. (ii) Both the BS and the IS shows the financial position of fen at the end of the year. (ii) BS of a company must be prepared in the horizontal format only. (iv) Preparation of Profit & Loss Appropriation A/c is a requirement under the Companies Act, 1956. (v) Ratio Analysis is the only technique of analysis of financial statements. (vi) Methodical presentation of financial statements helps in Nation of various ratios. (vii) In Common Size Statements, each item is expressed as a percentage of some common items (total). (viii) Trend Percentage Analysis helps in Dynamic Analysis. (ix) Liquidity Ratios help in analysing the cash position of the firm. (x) In calculation of Acid Test Ratio, Inventory is included in current assets. (xi) Working Capital Turnover Ratio may be classified as an Activity Ratio. (xii) Debt-Equity Ratio is a measure of long-term solvency of a firm. (xiii) GP Ratio and NP Ratio give the profitability of the firm from the point of view of the shareholders. (xiv) Return on Equity and Earnings per Share are one and the same thing. (xv) DU PONT Analysis looks into the elements of profits. (xvi) Ratio Analysis provides the solution to the financial problems. Answers: (i) T, (ii) F, (iii) F, (iv) F, (v) F, (vi) T, (vii)...
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...ACC351A – Midterm Quiz Name Refer to the supporting documentation. 1. (10%) Below is ratio data for McDonalds, a key competitor of Wendys/Arbys. Calculate the following ratios for the 2010 fiscal year for Wendys/Arbys and indicate whether they are better or worse than the industry ratios. | |MCD |Wendys/Arbys |Better/Worse | |Net Profit Margin |20.33% |0.14% |Worse | |Revenue Growth |4.52% |96.45% |Worse | |Return on Assets |11.41% |0.1% |Worse | 2. (10%) Calculate Wendys/Arbys’ Long Term Debt to Equity ratio for fiscal year ended 1/3/10 and state whether it is better or worse than the industry average of 89.6%. Do you think that Wendys/Arbys has the capacity to incur (take on) additional debt? LTD 1,500,784/2,336,339 = 64.2% Need an answer to whether Wendy’s has the capacity for further debt. 3. (10%) Wendys/Arbys’s current stock price and P/E are $4.91 and 22.3. McDonald’s current stock price and P/E are 77.32 and 15.22. Which stock is more expensive Wendys/Arbys or McDonalds and why? Which company would you invest your hard earned money in right now and why? (Brief explanation) Wendy’s stock has a higher P/E, so more expensive. Need an...
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...Cashflow Statement Paper Teresita Napalan ACC/421 April 25, 2013 Stephen Russell The statement of cash flows is an essential financial statement in the accounting industry. It is one of four principal financial statements required by GAAP. The primary purpose of the statement of cash flows is to provide relevant information about the cash receipts and cash payments of a business during a period. The statement indicates why cash (including short-term investments that are equivalent to cash) changed during the period by reporting net cash provided or used by operating activities, investing activities, and financing activities. This paper will discuss the direct method and indirect method of the statement of cash flows and will also discuss the different sections for the statement of cash flows and how it assists a variety of different users. The statement of cash flows reports cash flows in the following categories: Operating activities which are transactions which affect net income, Investing activities which are transactions that affect investments in fixed assets such as property, plant and equipment, and finally Financing activities which affect the equity and debt of the business. The user assisted most by the operating activities would most likely be accounts payable. This section of the cash flow statement includes cash payments such as inventory, payroll, taxes, interest utilities and rent. The net amount of cash provided (or used) by operating activities is the key figure...
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...CV FASHIONS/T-SHIRT MANIA 2013 BTEC L3 BUSINESS DIPLOMA UNIT 5 BUSINESS ACCOUNTING TINOTENDA MARECHA LAMBETH COLLEGE CV FASHIONS/T-SHIRT MANIA 2013 BTEC L3 BUSINESS DIPLOMA UNIT 5 BUSINESS ACCOUNTING TINOTENDA MARECHA LAMBETH COLLEGE CONTENTS DETAILS PAGE NUMBER PURPOSE OF ACCOUNTING-P1 | 2 | CAPITAL INCOME,EXPENDITURE AND REVENUE INCOME AND EXPENDITURE-P2 | 3 | CASHFLOW STATEMENT-P3(FIND ATTACHED CASHFLOW STATEMENT) | 4 | TRADING,PROFIT AND LOSS ACCOUNT-P4 | 5 | BALANCE SHEET-P4 | 6 | RATIO ANALYSIS:PROFITABILITY AND LIQUIDITY | 7 | EFFICIENCY AND INVESTMENT RATIOS | 8 | M1 | 9 | M2:RATIO ANALYSIS | 11 | D1 | 12 | D2 | 14 | CV FASHIONS P1: WHAT IS THE MAIN PURPOSE OF ACCOUNTING WITHIN...
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...would accounting look like under ideal conditions? Before we attempt an answer to the above question, we need to specify what role accounting is expected to perform, and what we mean by ‘ideal conditions’. In this context, we assume that the role of accounting is to provide information about asset values, chiefly information on future cash flows. We take ideal conditions to mean that knowledge about key valuation inputs such as future cash flows and interest rate are publicly known. By “certainty”, we assume that future cash flows and the interest rate used to discount these cash flows are publicly known with certainty. Under such situations, the value of any asset would equal the present value of discounted future cash flows. The income arising from the asset would simply equal the accretion of discount on the opening present value multiplied by the interest rate. Example 1: P2-15, page 57...
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