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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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
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It requires a strong internal control system to minimize and control. If the organization faces losses, damaged goods and stolen inventory some accounting steps to be followed as, 1. Losses: if the organizations goes for losses it will be write off in the income statement after valuation and should contact to the insurance company for insurance recovery.
Thus financial reporting framework helps to reduce the information asymmetry that exists between the management and the shareholders. It narrows down the financial knowledge to a level that the shareholders can interpret. Financial reporting is an interpretation which generally applies to transactions, management team uses its knowledge to develop and implement an accounting policy which results in information that is relevant and reliable to be used in making financial decisions by management themselves, shareholders and potential investors.
These Annual reports portray the performance of any given organization over a number of years usually 5 to 6 years. These Annual Reports are of great assistance for many different stakeholders and potential investors. The stakeholders and potential investors review these Annual Reports to analyze the current and predict the future performance of an organization by reviewing the trend carried out by the organization and the market trend.
Liquidity has two dimensions. Ease of conversion versus loss of value. Any asset can be converted into cash if its price is cut sufficiently. A highly liquid asset is therefore one that can be sold without significant loss of value. An illiquid asset is one that cannot be quickly converted into cash without a substantial price reduction.
They are the accounts or activities found on the income statement, by adding all the money gotten from the customers minus the monthly expenses.
The investing activities are those amounts generated by a company’s
Accounts Receivable Turnover is defined as the number of times accounts receivable turn-over in a year. A quick turn-over is needed in business because the receivables do not stay too long and is converted to cash.
2. Inventory turnover ratio. I think the ITR of 4.41%
The author states that the amounts for the assets are reported in accordance to prevailing average rates that were obtained from current market trends, such as land, building, etc. The tax expenses that reported are in the financial statement are based on the average taxations policy of the country that is subjected to change in times to come.
First, financial accounting primarily provides information for external users to make investing and lending decisions whereas management accounting provides information for internal users, usually the management, to make critical
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