The fundamental goal of accounting information is to provide organizational and economic decision makers with useful information, because, financial statements are designed to assist the users in identifying key relationships and trends (William, Haka and Bettner, 2004, p. p…
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report that measures the success of the company operations for a particular period of time and this is used by business and investment people to determine the profitability, investment value and creditworthiness etc (Keiso and Weygandt, 2007, p. 126). Income Statement summarizes revenues, gains, expenses and losses. Sales, fees, dividends and interest are parts of revenues, while expenses take forms of cost of goods sold, depreciation, interest, wages and salary etc. Gains and losses are different types like sale of plant assets or investments, settlement of liabilities etc. Expenses are debited and revenue are credited, and the total of these can be a net debit (loss) or net credit (profit). Income statement evaluates the past performance of the company and provides a basis for future prediction and assessing risk or uncertainty.
The Balance Sheet presents the financial position of the business through the main elements that are called assets, liabilities and stockholders’ equity (Davies and Pain, 2002, p. 49). Assets include those that can provide future economic benefits as a result of past transaction (plant, machinery, vehicles and all) and liabilities include those that are probable future sacrifices of economic benefits arising from present obligations- loan, overdraft etc- (Keiso and Weygandt, 2007, p. 173). Assets are regarded to be debit balances and liabilities and stockholder’s equity are credit balances. Balance sheet is always in a balance and hence it can be summarized as:
Neither balance sheet nor income statement show or directly analyze some of the key changes taken place in the financial position. They don’t show cash inflows and cash outflows that are in turn, highly important to know and assess the timing and uncertainty of cash flows. Cash-flow statement, instead, provides cash inflows and outflows and it calculates the net changes in the cash position of the business. It comprises of 1) operation activities which are cash effects of
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(Financial Statements Essay Example | Topics and Well Written Essays - 500 Words)
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Furniture is a product that has a huge marketplace due to the fact that all homes worldwide need furniture. A hot trend in the industry is the offering of green furniture which is furniture that is produced from renewable sources. A company that has exploited this trend in Europe and currently in the process of penetrating the US marketplace is IKEA.
The assets include accounts receivable. Accounts receivable asset represents the amounts owed by the creditors. Sometimes companies sell their product on account. This means the company delivers their products to the customers. In turn, the customers promise to pay their debts after several days or months.
The four basic financial statements are balance sheet, income statement, statement of changes in equity, and cash flow statement. Financial statements are important and used by different individuals or groups such as managers, employees, suppliers, creditors, government agencies, and the public.
In the literature, financial analysis has been characterized as ‘an information processing system used to provide relevant information for decision making’ (Belkaoui 1998, p.1). Particular reference is also made to financial statements ‘as the key source of information used in the financial analysis process’ (Belkaoui 1998, p.1).
Once the data has been collected and organised it is presented in such a way that is clear and usable and in acknowledged formats, primarily these are:
1. Income Statement: tell the profit-and-loss story for the current fiscal year. The statement records all the income generated during the period and all the expenses for the same period are deducted to arrive at 'net income' or the profit for the period.
The critical nature of the information demands that it be accurate and truthful. They are formatted and calculated using Generally Accepted Accounting Practices (GAAP). They must adhere to standards set by a government controlling body such as the Financial Reporting Council (FRC), the Accounting Standards Board (ASB), and the International Accounting Standards Board (IASB).
It will further elaborate how accounting for inventories will change according to these concepts/assumptions.
"The board of the International Accounting Standards Committee (IASC), a 13-member (all part-time) organization representing professional accounting groups (e.g., the AICPA) from member countries, promulgated IAS beginning in the mid-1970s.
Home Depot is one of the largest companies in this industry in terms of revenues and profitability. The main competitor of Home Depot is Lowe’s. However, Home Depot has always remained a step ahead of Lowe’s according to
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