Nuances in Preparing Financial Reports - Assignment Example

The paper “Nuances in Preparing Financial Reports” is an informative example of a finance & accounting assignment. Credits are considered to be inflows in an organization while debits are considered to be outflows in an organization hence the statement that credits are good while debits are good. However, both debits and credits could be good or bad, there are no set rules. For instance, a credit in cash could be an outflow while a debit in prepayments would be an outflow. Assets are debits and the more assets a firm has, the better. Liabilities on the other hand are credits but no firm prefers to have too many liabilities. On the other hand, revenue is credited although there are good. Therefore, I don’t agree with the statement. The concept of reporting entity is important to financial reporting as it enables the entity to determine whether the entity is operating at a profit or loss and whether the shareholders are getting adequate returns from their investment.

2. The following is the accounting cycle
- Transaction recognition- in this case, the transaction or recognizable event is identified.
- Source document preparation- source documents such as purchase orders and invoices are prepared.
- Analysis and classification of transactions. This involves quantifying the transaction in monetary terms.
- Preparation of general journal by making entries in the relevant journal.
- Trial balance- This unsure that the debits are equal to the credits.
- Adjusting entries. This is done to include any accrued, deferred, or other omitted amounts. An adjusted trial balance is prepared.
- Preparation of financial statements. This includes income statements, balance sheet, and cash flow statements

3. An accounting entity is an economic unit that engages in identifiable economic activities and controls economic resources for which accounting records are maintained and periodic financial statements are prepared and are distinct from its owner’s or employees’ personal dealings.

4. Past costs are considered irrelevant for decision-making since they are not incremental and can not be affected by the current decisions and are common to all alternatives that may be chosen.