...Running head: OFF-BALANCE SHEET FINANCING 1 Leases: Off-Balance Sheet Financing and the Strive for Transparency Today Brian Edman A Senior Thesis submitted in partial fulfillment of the requirements for graduation in the Honors Program Liberty University Spring 2011 OFF-BALANCE SHEET FINANCING Acceptance of Senior Honors Thesis This Senior Honors Thesis is accepted in partial fulfillment of the requirements for graduation from the Honors Program of Liberty University. 2 ______________________________ Gene R. Sullivan, Ph.D. Thesis Chair ______________________________ James B. Shelton, Ph.D. Committee Member ______________________________ Stephen R. Bowers, Ph.D. Committee Member ______________________________ James Nutter, D.A. Honors Director ______________________________ Date OFF-BALANCE SHEET FINANCING Abstract In today’s world, leases appear far and wide; they are commonplace throughout the business and accounting frontiers. Accounting for leases, however, is not so clear cut. Since there are various ways to account for leases, many companies pick and choose which they feel best suits their situation, even when this sweeps dirt under the rug along 3 the way. The financial procedures for dealing with leases should entail benefits as well as limitations to ensure each company is fairly representing all of its financial information. Off-balance sheet financing is one of the hot topics in accounting for leases because of the implications...
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...Application of Financial Statement – Balance Sheet Sharrone Caldwell Financial Accounting Strayer University – Online Campus Professor Lori Perez February 22, 2012 Abstract This paper focuses on the importance of a balance sheet and how it can be applied to everyday life. Managers can also benefit from the understanding of the balance sheet when making importance decision about the operations of a business. Additionally, financial statements such as the balance sheet and income statement both will serve as significant components in the operation of my own future talent agency business. Introduction The financial statement is essentially the ending result of the accounting process, which gives a summary of the financial position and performance of an organization in an organized way. A financial statement provides a summary of the operations of the business. Furthermore, financial statements provide information on where a company’s money originated from, how it is used, and where it is currently. Financial statements are also used in formulating companies’ annual reports. Corporate managers/management communicate financial information to its, owners, and various external concerned parties (stockholders/investors, employees, government, IRS, etc.). With that in mind, there are two primary types of financial statements: balance sheets, and income statements (Investopedia...
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...While some might categorize accounting as a matter of strict principles, numbers and exactitude, there are people who disagree and argue that there is a creative side to it. The article “Creative Accounting: How to Buff a Company” by Ken Brown elaborates on it. Summary Accounting has never been an exact science; yet, auditors often face the situations where their judgment is required. This judgment must be applied to hundreds of transactions, depending on the company. While doing this, they do not reflect the usage of a exact mathematical methodology, no. Their job requires a judgment and opinion from them to analyze endless numbers of transactions by having looked at sample size and not all of them. The previous in an attempt to make the auditing process not so costly while at the same time making the effort to reflect accurately their client’s financial condition. Brown utilizes Enron Corp. as a recurring example of creative accounting. “Now in the wake of Enron Corp.’s collapse and subsequent revelations of accounting irregularities at other big corporations, it has become increasingly clear that number crunchers often represent a company’s finances in the most flattering way”. And that is how “creative accounting” is explained. All that the so-called creative accounting is attempting to is an alteration of perceptions about a business’ performance. The article underlines three areas where accounting standards are “loose enough” for companies to make themselves look...
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...Pre-Test 1. Financial accounting is an information system that: tracks and records an organization's business transactions 2. Jeff Brown is the sole owner of Shoe Central, a small shoe shop. One day, he buys a used car for his personal use, and pays $2,000 from his checking account. The fact that this transaction has no effect on Shoe Central's financial accounts is an application of the: 3. Jeff Brown, owner of Shoe Central, a small shoe store, buys cleaning supplies for his store once every six months. The fact that his accountant writes off, or records as expenses, the full cost of the cleaning supplies when they are purchased, rather than each monthly accounting period as they are used, is an application of the: 4. Oliver Enterprises buys a new stamping machine for $10,000 at an auction held by a company in bankruptcy proceedings. The machine is a very good deal; Oliver would have paid about $12,000 to buy it in the open market. Which of the following statements best describes the application of the historical cost concept? 5. Tournas Sports receives a special order for 100 team jerseys. The customer pays the full amount, $2,000, at the time of the order. The jerseys will be delivered in two weeks. Choose the statement that best reflects the application of the revenue recognition concept at the time of the order: 6. On April 30, Jemison Engineering receives a special order for a swing set, to be delivered to the customer in a month's time. Jemison...
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...category of 1 10 Easy the balance sheet. 2 10 Easy 3 10 Easy 2. Examine how accruals affect the current liability category. 4 20 Mod 5 15 Mod 6 10 Mod 7 15 Mod 8 15 Mod 3. Demonstrate an understanding of how changes in current liabilities 9 5 Easy affect the statement of cash flows. 10 5 Mod 11 5 Mod 4. Determine when contingent liabilities should be presented on the 12 15 Mod balance sheet or disclosed in notes and how to calculate their amounts. 5. Explain the difference between simple and compound interest. 13 20 Mod 6. Calculate amounts using the future value and present value concepts. 14 5 Easy 15 5 Mod 16 10 Mod 17 10 Mod 24* 10 Diff 25* 10 Diff 7. Apply the compound interest concepts to some common 18 5 Mod accounting situations. 19 10 Mod 20 10 Diff 24* 10 Diff 25* 10 Diff 8. Demonstrate an understanding of the deductions 21 15 Mod and expenses for payroll accounting. (Appendix 9A) 22 20 Mod 9. Determine when compensated absences must be 23 10 Diff accrued as a liability. (Appendix 9A) *Exercise, problem, or case covers two or more learning objectives Level = Difficulty levels: Easy; Moderate (Mod); Difficult (Diff) Problems Estimated and Time in Learning Objective Alternates Minutes Level 1. Identify the components of the current liability category of 12* 10 Mod the balance sheet. 2. Examine how accruals affect...
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...Phoenix Accounting 280 Instructor: Silvana Moffitt Ever wonder how businesses like Apple, Wal-Mart, Home Depot, Lowe’s, or even Verizon keep themselves in business. It does not just have to do with marketing skills or good advertisements but these businesses also have to take into consideration the financial information when running these types of corporations. Accounting is a big part of running any type of company or corporation. To understand an organization, people have to look at the financial information, and this is how the accounting comes into play. This is the place that tells the company whether they will be able to pay their employees a bonus, how sales are going for that fiscal year, etc. To understand the purpose of accounting, we first need to see how it works. As well as look at the different financial statements that come along with working in the accounting field of business. Accounting Accounting has been a popular business career choice for people. This is one of many career fields on campus that students will go for. Ever wonder how the founder of Nike, the director of the Federal Bureau of Investigation, and the co-founder of Home Depot obtained their start in business. Besides receiving a degree in business, these people also went on to receive an undergraduate degree in accounting. These people wanted to understand financially firsthand what was going on in their organizations (Weygandt, 2008, p. 4). The first activity of accounting in a company...
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...this must have knowledge and the ability to perform properly accounting practices. There are four basic financial statements that manager need to use to answer questions about where the organization stands financially. Those four statements are balance sheet, statement of revenue and expense, statement of fund balance or net worth, and statement of cash flows. The balance sheet is exactly what its name states. It shows the balance of what the organization owns, owes and what is worth. The balance sheet shows these parameters in a particular point in time, not a period of time. It displays these figures as a as of date. The balance sheet displays in two rows two years of financial data with the most current data in the left hand column. On the balance sheet there are three distinct categories that displayed to be balanced. These areas on the balance sheet are assets, liabilities, and fund balance. Under the asset area there is current assets which equal current assets or cash equivalents, property, plant and equipment assets which equal long term assets and other assets which are noncurrent assets. All of these assets once added will give you a total of what you are worth. Within the balance sheet the second half displays liabilities which are current liabilities, which are paid off within a year and long term debt which is paid over many years. The last section of the balance sheet is fund balances. When fund balance and liabilities are added they should match the...
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...Types of Accounting A. Financial Accounting B. Managerial Accounting Role of Accounting * Safeguarding assets of the company (through record keeping) * Providing information to various user groups * Creditors (lenders) * Investors (stockholders) * Managers (internal users) * Regulatory agencies (e.g., IRS) * Of these groups investors may need the most comprehensive set of financial information. This will be our focus throughout this class. Organizational Forms * Sole Proprietorships * Partnerships * Corporations * Private * Public (our focus throughout this class) * Stocks listed on recognized national stock exchanges * Limited liability * Geographically diverse stockholder group * Stockholders have no direct control over day-to-day operations * Investors need timely financial information to make decisions Financial Reporting * Regulated by the Securities and Exchange Commission (SEC) * SEC does not make the actual rules but has final say * Rules developed by the Financial Accounting Standards Board (FASB) * Identifies areas that need to be fixed * Studies potential solutions * Circulates proposed rules for feedback * Recommends accounting procedures but SEC decides adoption * If adopted becomes part of Generally Accepted Accounting Principles...
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...Emission allowances and the related accounting issues Laura Chilian April 5, 2012 For many years, the Securities and Exchange Commission (SEC), and the International Financial Reporting Standards (IFRS), tried to establish a proper accounting treatment for emission allowances. The mechanism for these credits is based on a simple ‘cap and trade’ idea. The government issues a number of credits to each company based on the amount of greenhouse gases emitted. Issuing a lower number of credits than needed creates scarcity, which makes trade possible. Companies that emit more gases than they were allowed will pay a fine or buy more credits. Situations are reversed if companies use less credits than they should have. This creates a market-based system on an international level (“Emission Trading Schemes” 2). The first accounting conflict arises from the nature of these allowances. They could be considered assets held for use, grants from the government for the value of the allowances, or a liability/promise to deliver allowances equal to the emissions that have been made. Considering this, emission allowances can not be categorized as either net assets or net liabilities. Due to the lack of authority, accounting practitioners create diversity (“Emission Trading Schemes” 5). Two models or treatments are developed to account for these rights. 1) The inventory model: when...
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...Statements: Foundational Accounting Principles and Terminology Shane R. Wagner TUI University Module 1 Case Study 29 August 2010 Abstract This paper will discuss the common fundamental accounting principles and analyze the financial statements of three major businesses. A basic understanding of the General Accepted Accounting Principles and the standards established within these practices, allow for investors to obtain an accurate snapshot of the financial health of a business. The different methods of documenting both current and future transactions, can have an impact on the information portrayed by the financial statements of an organization. In addition, the basic format of the financial statements can disclose additional considerations of the business, as will be discussed in the analysis of three major businesses within this paper. Information for the analysis portion was retrieved from the financial statements included in the assignment. Keywords: Accrual Basis Accounting; Cost Basis Accounting; Current Assets and Liabilities; Double Entry Accounting; Financial Accounting Standards Board (FASB); General Accepted Accounting Principles (GAAP); Historic Cost; Non-current Items; Security Exchange Commission (SEC); Financial Statements: Foundational Accounting Principles and Terminology Introduction The basic of understanding of an organizations financial statement requires one to be familiar with fundamental accounting principles. The financial...
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...Accounting Equation ACC/300 October 6, 2014 Accounting Equation From the smallest sole proprietorship to the largest corporation, all transactions in a business setting will have an effect on a company’s monetary status. The monetary status of a business is defined by three things: liabilities, assets and owner’s equity. The liabilities are debts or obligations to other people and assets are property or funds owned by the company. The owner’s equity is the total assets of a company minus its total liabilities. The accounting equation: Assets = Liabilities + Owner’s Equity shows the association between the three types of accounts in the accounting world. The accounting equation differs slightly between a corporation and a sole proprietorship. The reason is because a sole proprietorship owns all the equity while a corporation shares the equity with stockholders. Thus, the accounting equation for a one-owner business is: Assets = Liabilities + Equity. The accounting equation for a corporation would be the same except the last part of the equation which would read as stockholder’s equity. Examples of assets include cash, account receivables, and equipment (Kimmel, Weygandt, & Keiso, 2010). From the accounting equation, the amount of assets must equal the combined amount of liabilities plus the equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, Weygandt, & Keiso, 2010). Examples of owner’s or stockholder’s...
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...Financial Accounting ACCT212 – Week 1 Live Lecture Goals of this Week’s Lecture • Present you with the information you need to begin succeeding in Financial Accounting • Provide a forum for question and answer regarding this week’s material • Begin satisfying our weekly TCO and key concepts ACCT212 Week 1 Lecture 2 How to be Successful? • All the information you need to be successful in this course comes from four primary sources: 1. 2. 3. 4. Your textbook eCollege This lecture, and Your instructor ACCT212 Week 1 Lecture 3 Financial Accounting – Week 1 • • • • • • • • • • Terminal Course Objective for the Week Key Concepts of the Week Business Decisions Accounting is the Language of Business Accounting Principles and Concepts The Accounting Equation The Financial Statements Relationships Among Financial Statements Account Types Getting Started on Project 1A ACCT212 Week 1 Lecture 4 TCO of the Week • TCO 1: “Given financial statements, explain the financial statements’ purpose and components relative to accounting history, assumptions, concepts, principles, and standards.” ACCT212 Week 1 Lecture 5 Key Concepts of the Week • Use accounting vocabulary • Learn accounting concepts and principles • Apply the accounting equation to business organizations • Evaluate business operations • Use financial statements ACCT212 Week 1 Lecture 6 Business Decisions • Suppose you are an investor with $10,000 to invest in any company you choose...
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...Employee, who is the company’s primary assets, is the secret in the sauce and the glue that holds the corporation together (Back, 2010). However, despite the importance of the employees, the companies do not include them as an asset in the balance sheet where all the other assets are being recorded (Kaye, 2012; McGrath, 2010). Employees are considered as an intangible asset to the company (Back, 2010). There are some reasons why employee is not or should not be include in the balance sheet as an asset. Many intangibles such as employees are not owned by the company in the first place (Adams, 2010; Kaye, 2012). Adams (2010) also stated that, a company can only put assets for which it has a clear ownership right on its balance sheet where employees do not meet that test. Furthermore, since there is no financial transaction creating the intangibles, the dollar value of intangibles can be difficult to identify (Adams, 2010). In basic accounting, we can see that accounting entries are made when there is money involve such as when the firm buys something, money is deducted from bank and the expense get booked to an expense or investment (Adams, 2010). However in most cases, intangibles are created outside the monetary system. McGrath (2010) mentioned that, value is created when employees learn something, but other than the employee’s salary, there is no financial transaction. Moreover, valuing employees or human capital is a very difficult task (McGrath, 2010; Weatherly, 2003). Weatherly...
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...ACC/561: Accounting March 2013 Financial Statement 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...
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...definition of accounting: Accounting is a set of concepts and techniques that are used to measure and report financial information about an economic unit. The economic unit is generally considered to be a separate enterprise. The information is reported to a variety of different types of interested parties. These include business managers, owners, creditors, governmental units, financial analysts, and even employees. In one way or another, these users of accounting information tend to be concerned about their own interests in the entity. Business managers need accounting information to make sound leadership decisions. Investors hope for profits that may eventually lead to distributions from the business (e.g., “dividends”). Creditors are always concerned about the entity’s ability to repay its obligations. Governmental units need information to tax and regulate. Analysts use accounting data to form opinions on which they base investment recommendations. Employees want to work for successful companies to further their individual careers, and they often have bonuses or options tied to enterprise performance. Accounting information about specific entities helps satisfy the needs of all these interested parties. The diversity of interested parties leads to a logical division in the discipline of accounting: financial accounting and managerial accounting. Financial accounting is concerned with external reporting to parties outside the firm. In contrast, managerial accounting is primarily...
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