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Notes to Consolidated Financial Statement - Essay Example

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Accounting policies can be defined as the rules of conduct or action that accountants around the universe adopt to help in the recording of financial information. Accounting policies may be divided into two parts; accounting concepts and accounting conventions. Accounting…
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Notes to Consolidated Financial Statement
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Download file to see previous pages In the statements of financial position, the Johnson’s Company is kept separately from its owners. The owners’ equity is made as an independent entity in the statement of financial position and classified under liabilities. In the year ended 2003, the Johnson’s Company had total stockholder’s equity worth $900,082. Among this were 7% preferred stock worth $300,000, common stock worth $400,000 and additional paid-in capital worth $737,500.
The going concern concept states that the firm remains in operation till the future. The business will continue running for a fairy long time and that it has no intention of scaling down its operations. Therefore, preparation of statements of the financial position of The Johnson’s Company is made under this concept. It is against this concept that it justifies charging depreciation over the entire life of an asset. The total accumulated depreciation of plant, property and equipment for The Johnson’s Company in the year ended 2003 was worth $634,600.
There is also the monetary measurement concept. This concept states that accounting should be done only to those items that are measurable in monetary terms / monetary value can be attached. The Johnson’s Company follows the monetary measurement concept by recording all its transactions and assets in monetary terms. This makes it easy to calculate profits and show the financial position of a business.
The historical cost concept assumes that assets are entered in books of accounting at the cost at which they were initially acquired. The Johnson’s Company records its transactions while following the historical cost concept. All the assets are entered in the statements of financial position in their initial cost of acquisition.
According to the accounting period concept, business life is divided into segments in order to study the results shown in financial statements after ...Download file to see next pagesRead More
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