... * Business Organizations will be of different forms- Sole Proprietorship , Partnership Firm, Joint Stock Company and Others like cooperative, non-profit making etc. * Such organizations need to take different decisions for their business activities. * Financial information is needed for decision making purpose. * Book keeping and Accounting will provide such information. * Meaning of Financial Accounting * Process of identifying, measuring, classifying, recording, summarizing and interpretation of the transactions of a business in terms of money to ascertain the result and financial position of business activities of particular period. * Accounting is the art of recording, classifying and summarizing, in a significant manner and in terms of money, transactions and events which are in the part at least, of a financial character and interpreting the results there of.- AICPA * Its features are- * Financial language * Financial information * Systematic process * Functions * Information system * The Purposes of Financial Accounting The objectives of accounting are- * To maintain records- * To generate accurate and authentic information, all the financial activities needs to be remembered which will not be possible without keeping records. As accounting helps to memorize all the transactions with records, it is the objective of accounting. * To ascertain operating results- * Accounting ascertains whether...
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...of accounts, classifying or grouping them and finally summarizing the transactions in a manner useful to the users of accounting information . Let’s now discuss these accounting processes one by one: 1. Identifying the transactions and events: This is the first step of accounting process. It identifies the transactions of financial character that is required to be recorded In the books of accounts. Transactions is transfer of money or goods or services from one person or account to another person or account. 2. Measuring: This denotes expressing the values of business transactions and events in terms of money 3. Recording: It deals with recording of identifiable and measurable transaction and events in a systematic manner in the books of original entry that are in accordance with principles of accountancy. 4. Classifying: It deals with periodic grouping of transactions of similar nature that appear in the books of original entry into appropriate heads by posting or transfer entries 5. Summarizing: It deals with summarizing or condensing transactions in a manner useful to the users. This function involves the preparation of financial statements such as income statement, balance sheet, statement of changes in financial position and cash flow statement 6. Analyzing: It deals with the establishment of relationship between the various items or group of items taken from income statement or balance sheet or both. Its purpose is to identify the financial strengths and...
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...This case gives students an opportunity to apply cash flow principles to determine the appropriate classification of various transactions in the statement of cash flows. Applicable Professional Pronouncements ASC 230, Statement of Cash Flows (ASC 230) IAS 7, Statement of Cash Flows (IAS 7) Discussion 1 — Purchase of 2012 Emission Allowances What is the appropriate classification in the statement of cash flows in Polluter Corp.’s (the ―Company’s‖) December 31, 2010, financial statements for its purchase of 2012 emission allowances (―EAs‖) from Clean Air Corp.? Accounting Alternatives — Purchase of 2012 Emission Allowances Alternative 1 — The Company should classify the purchase of the 2012 EAs from Clean Air Corp. as an investing cash outflow in its December 31, 2010, statement of cash flows. Proponents of Alternative 1 believe the Company should classify the purchase of EAs as investing activities in the statement of cash flows given the Company’s election to classify the EAs as intangible assets on its balance sheet. Although EAs are not specifically mentioned in ASC 230, proponents of Alternative 1 believe, given the Company’s accounting policy, the EAs represent ―productive assets.‖ ASC 230-10-20 defines investing activities as follows: Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets, that is, assets held for or used in the production of goods or...
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...To: Supervisor From: Date: September 10, 2012 Subject: FASB Research Results and Recommendations The Financial Accounting Standards Board (FASB) website offers information on many accounting subjects. Per your request I have researched the FASB website for information on leases and lease structure issues, in particular the current practices and thought related to direct financing, sales type, and operating leases. The following is a brief explanation of the results and also a recommendation of an approach that the client can use to evaluate and capitalize on the opportunity of adding the new customer. The FASB has outlined certain criteria for classifying leases as either capital leases or operating leases. In SFAS No. 13 the criteria for classifying a lease as a capital lease are; the lease transfers ownership, the lease contains a bargain purchase option, the lease term is equal to 75 percent or more of the estimated remaining economic life, and at the beginning of the lease term the present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any related investment tax credit retained by the lessor (Schroeder, Clark, & Cathey, 2011). The lease only has to meet one of those criteria to be a capital lease. If none of these criteria are met then the lease is classified as an operating lease. Leases can also be classified as a sales type lease or a direct financing lease. For a lease to be classified as a sales type...
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...individual would expect to see various types of financial reports. These various reports allow the individual to identify areas in need of improvement along with many other business decisions. The primary focus will be on the preparation of reports of managers and officers in the company. This will provide tools to assist in making business decisions and evaluating the effectiveness of the decisions being made (Kimmel, Weygandt, & Kieso, 2003). Among the reports in a financial department are the income statement, balance sheet, cost-volume-profit income statement, statement of cash flows, and a retained earnings statement. These types of financial reports are among the essential tools that are necessary in managerial accounting for business decision making. The income statement can be a very useful tool to illustrate the company’s expenses such manufacturing costs. Here, three basic functions are illustrated as direct materials, direct labor, and manufacturing overhead. Beginning work in progress plus total current manufacturing costs gives the manger a distinct view of the total cost of work in progress. In addition to this, the manager can evaluate the cost of manufacturing goods by subtracting the ending work in process from the total work in progress. This and other types of financial statements such as a balance sheet provide managers with data on the efficient use of the company’s manufacturing and service resources. The balance sheet can be utilized to examine assets and account...
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...zhy ] subject: comment memo on leases ed date: july 8, 2013 ------------------------------------------------- The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) developed common lease accounting requirements to ensure that assets and liabilities from lease contracts are recognized in the balance sheet. August 17, 2010, the FASB issued Proposed Accounting Standards Update – Leases (Topic 840). Because leasing is an important source of finance, the board issued an Exposure Draft (ED) to ensure that this development would be with a complete and understandable picture of an entity’s leasing activities. Following are my opinions about some important questions regarding Proposed Accounting Standards Update – Leases (Topic 840). 1a. Do you agree that a lessee should recognize a right-of-use asset and a liability to make lease payments? Why or why not? If not, what alternative model would you propose and why? I agree that a lessee should recognize a right-of-use asset and a liability to make lease payments. The right-of use concept is an accounting treatment that places assets and liabilities from a leasing contract on the balance sheet of lessees. This treatment would reflect in the financial statement that leased assets and liabilities would be placed on the balance sheet. It would also suitable to most leases agreement. 1b. Do you agree that a lessee should recognize amortization of the right-of-use asset...
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.... (TCO A) Which of the following statements is not an objective of financial reporting? (Points: 5) Provide information that is useful in investment and credit decisions. Provide information about enterprise resources, claims to those resources, and changes to them. Provide the liquidation value of a company. Provide information that is useful in assessing cash flow prospects. 2. (TCO A) The Financial Accounting Standards Board employs a "due process" system which (Points: 5) has all CPAs in the United States vote on a new Statement. enables interested parties to express their views on issues under consideration. identifies the accounting issues that are the most important. requires that all accountants receive a copy of financial standards. 3. (TCO A) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the (Points: 5) SEC AICPA IASB GASB 4. (TCO A) The cash method of accounting: (Points: 5) is used by most publicly-traded corporations for financial statement purposes. is not in accordance with the matching principle for most publicly-traded corporations. is often used on the income statement by large, publicly-held companies. All of the above is true. 5. (TCO A) Which of the following is an ingredient of relevance? (Points:...
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...you may be the subject of copyright or performers’ protection under the Act. Do not remove this notice. Hello, welcome to Introductory Accounting Welcome to the second lecture. In this lecture, we shall look at: steps in the accounting cycle definitions of key terms accounting reports relationship between the income statement and the balance sheet Accounting cycle a regular repetition of a standardised set of steps from the capturing of financial information on the source documents to the preparation of financial reports the procedure constitutes a complete accounting process of capturing, classifying, recording, summarising and presenting financial information The cycle begins again Details of a transaction are recorded on to a 1. Source document 5. Reports The Accounting Cycle 2. Journals 4. Trial Balance 3. Ledger Transaction an event that alters the financial position of a business and requires the entering of information into accounting records Example a tuition centre receives $2000 tuition fees from a student Source document the original financial document that contains the evidence of a transaction contains the details that will be recorded into the journal Example a receipt for the tuition fees is issued to the student when cash is received by the business Journal a book of original...
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...1. Which of the following is a limitation of the balance sheet? (Points: 1) Many items that are of financial value are omitted Judgments and estimates are used Current fair value is not reported All of the above 2. The balance sheet is useful for analyzing all of the following except _______________. (Points: 1) liquidity solvency profitability financial flexibility 3. The correct order to present current assets is _______________. (Points: 1) cash, accounts receivable, prepaid items, inventories cash, accounts receivable, inventories, prepaid items cash, inventories, accounts receivable, prepaid items cash, inventories, prepaid items, accounts receivable 4. The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in (Points: 1) inventory back into cash, or 12 months, whichever is shorter. receivables back into cash, or 12 months, whichever is longer. tangible fixed assets back into cash, or 12 months, whichever is longer. inventory back into cash, or 12 months, whichever is longer. 5. The current assets section of the balance sheet should include _______________. (Points: 1) machinery patents goodwill inventory 6. An example of an item which is not an element of working capital is (Points: 1) accrued...
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...a numerical system for classifying industries with a four-digit code. It was established in the US in 1937. In 1997, the SIC system was replaced by a system called North American Industry Classification System (NAICS code). Certain agencies like the Securities and Exchange Commission (SEC) still use the SIC codes. The purposes of these systems are to collect, analyze and publish statistical data related to the economy. It simplifies reporting and comparing businesses. Another usage of the codes is by the Internal Revenue Service, Social Security Administration and by the Bureau of Labor Statistics, who updates the codes every three years and uses SIC to report work force, wages and pricing issues. The representations of the numerical codes are different for each classification system. Under the SIC codes, the first two digits of the code represent the major industry sector to which a business belongs. The third and fourth digits describe the sub-classification of the business group and specialization, respectively. http://www.census.gov/eos/www/naics/ The Standard Industry Classification (SIC) code for Coca-Cola is 2080 and Coke is 299901. www.osha.gov/pls/imis/sic_manual.display?id=631&tab=description The NAICS code for Coca-Cola is 312111. http://www.naics.com/naics-code-description/ 10. What types of financial data are found in the company's financial statements, including footnotes? The types of financial data found in company’s financial statements are numerous...
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...This paper will outline the differences in accounting treatment of and criteria for determining whether leases should be accounted for as either a capital lease or an operating lease. I will be limiting my discussion to the accounting treatment of leases by the lessee. This paper will discuss the current accounting treatment for the two types of leases according to Canadian GAAP and will tie in elements of the conceptual framework to the treatment of leases from CICA handbook section 1000, followed by a discussion on accounting theories related to lease treatment, and finally current issues outlined in academic research concerning lease treatment by the lessee. Capital and Operating Leases There are two major classifications of leases. Capital leases and operational leases. A Capital lease is defined in the CICA handbook as “a lease that, from the point of view of the lessee, transfers substantially all the benefits and risks incident to ownership of property to the lessee” (CICA, 2010, Section 3065, ¶3). In order for a lease to be classified as a capital lease, the life of the lease must exceed 75% of the life of the leased item, there must be a transfer of ownership at the end of the lease or a bargain purchase option, and the present value of the lease payments must exceed 90% of the fair market value of the asset (Grossman, A., & Grossman, S., 2010). An operational lease is described by the CICA handbook as “a lease in which the lessor does not transfer substantially...
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...Financial Statements “Accounting Equation” was the very first PhxKlips that was presented. The equation Assets = Liabilities + Owner’s Equity also known as the ALOE equation was one of the main things I’ve learned. I remember doing this in an accounting class that I took in high school. It explained things a lot better than I already knew. This is the known as the foundation for all of the principles and accounting tasks in accounting. “Debits and Credits” was the second PhxKlips that was presented. Income is recorded on the right side of the T account which is a credit, and expenses are recorded on the left side of the T account which is a debit. This taught me when to use credits and debits when posting expenses and income. “Financial Statements” was the third PhxKlips that was presented. This presented four financial statements that are used to report financial information within a company. The four statements are the Statement of Cash Flow, the Balance Sheet, The Retained Earnings Statement and the Income Statement. These four financial statements make up the condition that the company is in financially. “Income Statements” was the last PhxKlips that was presented. Two approaches to gross profit expression were presented with this. Single step and multi-step approaches. The single step approach deals with one piece of information. That’s expense, revenue and net income. The one and only step is expenses are subtracted from revenues. This makes setting up an income statement...
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...Background Hearts ‘R Us (“Hearts”), a young private research and development medical device company, sold $3.5 million of its Series A Preferred Shares on November 30, 2011 to Bionic Body (“Bionic”). This transaction gave the company enough financing for their heart valve system which they hope will revolutionize the way heart valve defects are repaired. In order to make this product available for sale they need a final approval by the FDA. The shares sold to Bionic have a par value of $1 per share and the purchase has given Bionic the following five rights: Board rights Mandatory Conversion Right Contingent Redemption Right Additional Protective Rights Right of First Refusal and Co-Sale Rights After Year 4, Hearts is still in the process of filing for FDA approval. The clinical testing and administrative process for filing for the FDA approval have taken much longer than initially anticipated. In addition, the trial results have been worrisome because of certain post-surgery issues that have been experienced by patients who received the Heart Valve System. It is certain the product will not receive FDA approval by end of Year 5. Hearts had planned to have an initial public offering (IPO) in the future. --- Whether the preferred stocks should be classified (treated) as a (debt/equity) is an accounting issue because of the guidance of the ASC Codification 815-15-25 (Derivatives and Hedging, Embedded Derivatives, Recognition) paragraph 17 shown below; 25-17 ...
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...money on one page of her "household diary" while payments for different items such as milk, food, clothing, house, education etc. on some other page or pages of her diary in a chronological order. Such a record will help her in knowing about: (i) The sources from which she received cash and the purposes for which it was utilized. (ii) Whether her receipts are more than her payments or vice-versa? (iii) The balance of cash in hand or deficit, if any at the end of a period. In case the housewife records her transactions regularly, she can collect valuable information about the nature of her receipts and payments. For example, she can find out the total amount spent by her during a period (say a year) on different items say milk, food, education, entertainment, etc. Similarly she can find the sources of her receipts such as salary of her husband, rent from property, cash gifts from her relatives, etc. Thus, at the end of a period (say a year) she can see for herself about her financial position i.e., what she owns and what she owes. This will help her in planning her future income and expenses (or making out a budget) to a great extent. The need for...
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...ACC 290 Final Exam 1) Which financial statement is used to determine cash generated from operations? A. Income statement B. Statement of operations C. Statement of cash flows D. Retained earnings statement 2) In terms of sequence, in what order must the four basic financial statements be prepared? A. Balance sheet, income statement, statement of cash flows, and capital statement B. Income statement, capital statement, statement of cash flows, and balance sheet C. Balance sheet, capital statement, statement of cash flows, and income statement D. Income statement, capital statement, balance sheet, and statement of cash flows 3) In classifying transactions, which of the following is true in regard to assets? A. Normal balances and increases are debits. B. Normal balances and decreases are credits. C. Normal balances can either be debits or credits for assets. D. Normal balances are debits and increases can be debits or credits. 4) An increase in an expense account must be A. debited B. credited C. either debited or credited, depending on the circumstances D. capitalized 5) ABC Corporation issues 100 shares of $1 par common stock at $5 per share, which of the following is the correct journal entry? A. Cash $100 Common Stock $100 B. Cash $500 Common Stock $500 C. Cash $500 Paid-in Capital, Excess of Par $400 Common Stock $100 D. Cash $100 Paid-in Capital, Excess of Par $400 Common Stock $500 6) In the first month of operations, the total of the...
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