...Question1 Two internal users of accounting information are Management and Employees. Management * For inspecting the association’s presentation and situation and taking apposite measures to progress the company effects. Employees * For investigating the feasibility and productivity of their speculation and decisive any upcoming course of achievement. Four external users of accounting information are Creditors, Investors, Customers, Regular Authorities. Creditors * For decisive the credit dullness of the association. Relations of credit are set by creditor rendering to the assessment of their customers monetary such as banks. Investors * For investigating the practicability of capitalizing in the company. Depositors want to make sure they can earn a sensible return on their investment before they obligate any financial capitals to the company. Customers * For evaluating the financial situation of its supplier which is essential for them to continue a constant source of supply in the long term. Regulatory Authorities * For certifying that the company’s revelation of accounting info is in agreement with the directions and protocols set in order to protect the interests of the stakeholders who trust on such material in forming their choices. Question2 i. Historical Cost * Is the value of a source given up or a liability acquired to obtain an asset/service at the time when the resource was given up or the liability experienced? ...
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...quarter of 1998 and the second quarter of 2001. According the evidence and the proclamation of prosecutors, the action account department has taken was not following the GAAP. However, to the word of Richard himself, this way of accounting was not a really big deal like the WorldCom bankrupt or Enron bankrupt. And he is also very confident to continue developing his career in the future after he is released from the jail. 1. Sumarize the lessons learned by you from reading this article. The way that Computer Association records its sales has pointed out several accounting principles and concepts. According to the article, the account department recognized revenue while the contract was signed. It follows the accrual concept that revenue is recognized not only when cash transactions occur. Since the contracts were signed, the revenue could be received sooner or later. The accrual accounting helps to provide a more accurate picture of current company condition. However, Computer Association made an aggressive accounting strategy that some of the revenue of next quarter was recognized in the current quarter, which increases the revenue in the current quarter. Though the revenue of next quarter will decrease, the...
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...use of the accruals basis 5.1 Government accounting Government accounting is the process of recording, analyzing, classifying, summarizing communicating and interpreting financial information about government in aggregate and in detail reflecting transactions and other economic events involving the receipt, spending, transfer, usability and disposition of assets and liabilities. The purposes of government accounting are: • To carry out the financial business of government in a timely, efficient and reliable manner (e.g. to make payments, settle liabilities, collect sums due, buy and sell assets etc.) subject to necessary financial controls. • To keep systematic, easily accessible accounting and documentary records as evidence of past transactions and current financial status, so that detailed transactions can be identified and traced and all aggregates can be conveniently broken down into their constituent parts. • To provide periodic financial statements, containing appropriately classified financial information, as a basis for (a) stewardship and accountability and (b) decision-making. • To maintain financial records suitable for budgetary control, internal control and the needs of auditors. • To provide means for effective management of government assets, liabilities, expenditures and revenues. In government, the producers of accounting information are rarely qualified accountants. Therefore few have experience of accrual accounting...
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...Difference between Cash and Accrual Accounting: The cash basis of accounting, simply as the name suggests, records financial information on the basis of the actual cash movement. Revenues to be recognized when cash received and expenses to be recognized when cash paid out. Cash basis is normally adapted by small businesses mainly traders as it is quite easy, straightforward and can easily be set up and maintained without following a lot of complex accounting rules. Care must be taken when using financial statements prepared under the cash basis as it is not completely accurate e.g cash outflows due to purchases of fixed assets would only affect the period they are recorded in though they are to be used over a certain period of time, concepts such as depreciation are used under the accrual system to overcome such disruptions. The accruals basis of accounting which is a more sophisticated method recognizes revenues when “earned” and expenses recorded when “incurred” regardless of the cash movements relating to each. For e.g. in the case of a service business providing a service will recognize its revenue once the job is completed even if the customer hasn’t cleared the dues yet. Same approach is used for the expenses, recorded when incurred not when paid. Accrual accounting method improves the reported information by presenting a more realistic and accurate view of the underlying operations primarily matching reported income with reported expenses in a specific period. When cash...
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...Brain Teaser 4: Cash Basis or Accrual Basis a) Use FARS to identify what standards-setters have said as to the superiority of accrual accounting relative to a cash basis. Do you agree with the justification for accrual accounting? Explain? The FASB has stated that the accrual-basis method is superior to the cash-basis method. For example, the accrual-basis method promotes the caution and equivalent concepts, which are two of the fundamental accounting concepts. Thus, dissimilar to the cash-basis method, financial statements indicate the actual responsibilities of an organization and what resources the organization actually possesses. This means the accrual basis method offers a more precise depiction of the financial status of the reporting organization. Statement No. 106 lists the objectives proposed/used by the Financial Accounting Standards Board. http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010215 b) Identify which accounting pronouncement specifically observes: This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting. This statement is part of the Financial Accounting Standards Boards Statement of Financial Accounting Standard No. 106, which challenges Employees Accounting for Postretirement Benefits Other Than Pensions, this Statement was announced in 1990. http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010215...
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...that his company should hold off on recording the loss until a settlement has been reached. A contingency is an existing situation dealing with the possibility of a loss or gain to a company that will be a result from future events failing to occur. The chances of winning the case are remote which means Camp Industries is not likely to win the law suit. According to the standards of financial accounting and reporting states “An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met: The amount of loss can be reasonably estimated and it is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.” If no accrual is recorded for the contingency the financial statements could be very well misleading. A discloser should be made if the loss is estimated; if not then a discloser should be made stating that an estimate cannot be made. The ethical dilemma resulting from the case involves falsifying financial statements in order to avoid the documented disclosure of the loss from being exposed to the opposing party. This also is a creditability and integrity issue. No matter what a colleague suggests, you should always follow the current accounting standards. This could jeopardize your career as well as the creditability of Camp Industries in the eyes of stakeholders. Stakeholders are anyone or group that has interest in Camp Industries. Key stakeholders...
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...© 2000 American Accounting Association Accounting Horizons Vol. 14 No. 2 June 2000 pp. 235-250 Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators Patricia M. Dechow and Douglas J. Skinner Patricia M. Dechow is an Associate Professor and Douglas J. Skinner is a Professor, both at the University of Michigan. SYNOPSIS: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and reguiators. Practitioners and reguiators often see earnings management as pervasive and probiematic—and in need of immediate remediai action. Academics are more sanguine, unwiiiing to beiieve that earnings management is activeiy practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management. INTRODUCTION Despite significant attention on earnings management from regulators' and the financial press,^ academic research has shown limited evidence of earnings management. While practitioners and regulators seem to believe that earnings management is For example, SEC Chairman Levitt delivered a major speech on earnings management in the fall of 1998 in which he advocated a niunber of initiatives to improve the quahty of financial reporting (Levitt 1998). As part...
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...Commitment Accounting. This accounting technique recognizes transactions and records them at the time the order was issued. This can be used in conjunction with cash accounting and accrual accounting. 3. Fund Accounting. The technique is performed with the concept of fund. It treats a working unit as an accounting entity and budget entity which stands alone. 4. Cash Accounting. In this technique, revenues are recorded when cash is received, and expenses are recorded when cash is removed. 5. Accrual Accounting. This technique differentiates between cash revenues and rights to earn cash, and cash expenditures and obligations to pay cash. In my opinion, accrual accounting technique is the best technique to use for public sector organizations. In this technique, revenues and expenses are recognized when earned or incurred, regardless of whether cash is received or spent. The use of the accrual basis in the public sector is one of the characteristics of modern financial management practices that aim to provide more transparent information and improve the quality of decision making within government organizations. It is considered as the best because in the accounting for the commercial companies, the use of accrual technique is able to produce more relevant financial statements. Therefore, using the full accrual basis...
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...of California, Berkeley, CA 94720, United States University of Washington, Seattle, WA 98195, United States University of Pennsylvania, Philadelphia, PA 19104, United States a r t i c l e i n f o abstract Available online 4 November 2010 Researchers have used various measures as indications of ‘‘earnings quality’’ including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because ‘‘quality’’ is contingent on the decision context. We also point out that the ‘‘quality’’ of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. & 2010 Elsevier B.V. All rights reserved. JEL classification: G31 M40 M41 Keywords: Earnings quality Earnings management Review Survey 1. Introduction Statement of Financial Accounting Concepts No. 1 (SFAC No. 1) states that ‘‘Financial reporting should provide information about an enterprise’s financial performance during a period.’’ Borrowing language from SFAC No. 1, we define earnings quality as follows: Higher quality earnings provide more information about the features of a firm’s financial performance that are relevant to a specific decision...
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...Accrual Basis Accounting: Businesses Record Transactions as They Occur Abstract The purpose of this paper is to summarize the effects of accuracy and reliability of accrued expenses for financial information provided to users based on academic information. I will evaluate several key factors that are involved in accruing for expenses and how accruals affect a company’s financial statements. Included will be GAAP’s matching principle and FASB guidance on accruals. Other sources examined will from several academic articles. The results indicate that accruing for expenses maintain the matching concept. Accruals help avoid deceptive income statements that could result from the timing of cash payments. Table of Contents Abstract …………………………………………………………………………………...2 Table of Contents …………………………………………………………………………3 Introduction …………………………………………………………………………….....4 Literature Review ………………………………………………………………….. …......5 Locating Financial Misstatements: Where to Look……………………………....5 Accounting for the Costs to treat Environmental Contamination…………………7 Coping with FASB Statement No. 106-- "Accounting for Post-retirement Benefits Other Than Pensions…………………………………………………8 On the Implementation of Accrual Accounting: A Study of Conflict and Ambiguity……………………………………………………………………..8 Depreciation Rules and the Relation between Marginal and Historical Cost…….9 The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition…...9 On Matching...
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...ACCOUNTING INFORMATION SYSTEM IFRS questions are available at the end of this chapter. TRUE/FALSE AnswerNo.Description F1.Recording transactions. T2.Nominal accounts. F3.Real (permanent) accounts. F4.Internal event example. F5.Liability and stockholders’ equity accounts. F6.Debits and credits. F7.Steps in accounting cycle. T8.Purpose of trial balance. T9.General journal. F10.Posting and trial balance. T11.Adjusting entries for prepayments. T12.Example of accrued expense. F13.Book value of depreciable assets. T14.Reporting ending retained earnings. F15.Post-closing trial balance. F16.Closing entries and Income Summary. F17.Posting closing entries. F*18.Accrual basis accounting. F*19.Purpose of reversing entries. F*20.Adjusted trial balance. MULTIPLE CHOICE—Conceptual AnswerNo.Description d21.Purpose of an accounting system. d22.Necessity of accounting records. d23.Purpose of an accounting system. d24.Book of original entry. d25.Purpose of trial balance. d26.Identification of a real account. b27.Identification of a temporary account. a28.Temporary vs. permanent accounts. c29.Meaning of debit. c30.Double-entry system. a31.Effect on stockholders’ equity. a32.Transaction analysis. a33.Accounting equation. b34.Accounting process vs. accounting cycle. d35.Accounting cycle steps. d36.Criteria for recording events. d37...
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...Basic Accounting Concepts and Business Structures Basic Accounting Concepts and Business Structures The accounting environment is constantly changing to improve so decision-making in the business world will thrive. To be successful in a business, understanding the fundamental concepts are essential to make informed decisions. The federal government formed the SEC to standardize financial information and to keep the financial environment regulated. In the following sections the basic concepts of accounting will be addressed along with the three business structures. Generally Accepted Accounting Principles The framework of guidelines on standards and rules for financial accounting are referred to as the generally accepted accounting principles (GAAP). The American Institute of Certified Public Accountants (AICPA) issued the hierarchy of generally accepted accounting principles as an auditing standard. It has four categories ranging from most authoritative, Category A to least authoritative, Category D. The major sources are FASB Standards, Interpretations, and Staff Positions, along with the ABP Opinions, and AICPA Accounting Research Bulletins. The hierarchy is important because there are times when these sources do not provide the guidance needed by companies. When a company is looking for guidance and there is conflicting information, the company should always refer to the pronouncements in the higher...
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...Reversing Entries XACC/290 August 24, 2014 Reversing entries are used to offset expenses which are accrued during a month and is paid the following month. When an entry is reversed it means that it is zeroed out. As state by Accrual Accounting Concepts ch. 4, p. 190, "a company makes a reversing entry at the beginning of the next accounting period. This entry is the exact opposite of the adjusting entry made in the previous period." During the first month an expense is accrued which makes it an account payable. Even though the money to pay the bill is earned the same month the actual bill is accrued, it will not be adjusted to the following month. Reversing entry is what shows that the expense which was accrued last month is paid this the following month. Reversing entries has its advantages and disadvantages. One of the disadvantages of reversing entries is that they are two part entries. It is entered a certain way the first period and is then balanced with an entry which suffices the second month. This means that it is double work. If you forget to do the reverse entry when the bill is actually paid then you will end up with an error when trying to balance. One of the many advantages of using a reversing entry is that it helps you track how much money is spent on a certain bill over a certain period. For example if you spent a certain amount of money on cool-aid...
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...paid in different periods. We have the position of the Owner-Player Committee (OPC) representing the owners who obviously want to present low profitability in their financial statements to get a better treatment for taxes and in the other side we have the position of the Professional Baseball Players Association (PBPA), the organization representing players, who argues that owners are not transparent with their financial statements showing low or in most cases negative profits, then players petition is that owners show real financial statements and that profit will be share with them. To have a balanced judgment we should think about some accounting concepts as the Revenue and Expense Recognition Principle, where companies recognize revenues and expenses in the period of time when these are earned, which are the basis of Accrual Accounting. By the other hand we also have another approach, the Cash-basis Accounting where companies recognize revenue when cash is received and expense when cash is paid which is not generally accepted. Analyzing the two versions of Income Statement we realized that they agree in several points but they differ basically in three aspects: Roster depreciation: As tax rules allow applying a maximum of 50% depreciation, owners proceeded that way (linearly for 6 years) probably with the intention of cover profits with expenses as depreciation. Players argue that no depreciation should have been considered because roster actually “appreciates”. In my...
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...Workshop | No Assessment | 2 | 7 March | Topic 2 - Regulation | Carlon Chapter 1 | Introduction | Formative - Practice Quiz topic 1and 2 | 3 | 14 March | Topic 3 - Financial Statement Analysis | Carlon Chapter 12 | Regulation | Formative - Practice Quiz Topic 3 | 4 | 21 March | No classes this week | Summative Quiz 1 – topics 1 and 2 Opens 21/3 10am Closes 22/3 10am | Mid-semester Break: 25/3 to 3/4 | 5 | 4 April | Topic 4 - The Recording Process | Carlon Chapter 2 | Financial Statement Analysis | Formative - Practice Quiz Topic 4 | 6 | 11 April | Topic 5 - Accrual Accounting Concepts | Carlon Chapter 3 | The Recording Process | Formative - Practice Quiz Topic 5 | | | | | | Summative Assignment Part A DUE 15/4 4pm through turnitin (15%) | 7 | 18 April | Topic 6 - Inventories | Carlon Chapter 4 and 5 | Accrual Accounting Concepts | Summative Quiz 2 – topics 3 and 4 Opens 18/4 10am Closes 19/7 10am | 8 | 25 April | Topic 7 - Accounting Information Systems | Carlon Chapter 6 | Inventories | Formative - Practice Quiz Topic 6 | 9 | 2 May | Topic 8 - Cash Part 1 | Carlon Chapter 7 (not pages 422 -428) | Accounting Information Systems | Summative Quiz 3 – topics 5 and 6 Opens 2/5 10am Closes 3/5 10am | 10 | 9 May | Topic 9 - Cash Part 2 | Carlon Chapter 7 (pages 422 -428) and Chapter 11 | Cash Part 1 | Formative - Practice Quiz Topics 7and 8 | 11 | 16 May | Topic 10 - Non-Current Assets | Carlon...
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