financial accounting homework solutions

financial accounting homework solutions

Financial Accounting Homework Solutions

1. Introduction

The author explains that financial accounting plays a major role in providing relevant information about a company that is helpful to existing and potential investors, lenders, and other creditors in making decisions about the company. This kind of accounting requires accountants to put aside their personal judgments and use strict, research-based rules at all times. Through appropriate accounting processes and policies, a company consistently assesses the method in which it accounts for business transactions and monitors success and growth with financial accounting as well. He also explains the differences between financial and managerial accounting. Managerial accounting is concerned with providing information to managers, that is, to those who are inside an organization and who are charged with the responsibility of running the organization in an efficient and effective way. On the other hand, financial accounting provides information to people who are outside the company and helps those people make decisions about how they should allocate their resources.

2. Understanding Financial Accounting Concepts

For clarity, the term ‘scenario’ refers to a particular example used in the content to help explain concepts better. Each of these scene learning examples is then broken down into five different steps to aid explanation. The examples in the textbook are led by a persona named Sam and the scenario does evolve through each step in a logical manner. This is something that the writer has found particularly useful; the careful and logically ordered explanation of multiple examples using a practiced scenario is a massive help in digesting new knowledge and understanding each phase of the solution process. Even though writing about the same scenario over and over could be seen as long-winded, we can see that each example grants a further insight into the second section of the accounting content. This progression helps to increase confidence and ability to answer questions without a lot of external help. Demonstrably, fostering this independent way of learning is a sure-fire way to great personal studying and academic success.

This section of the content also looks at different types of businesses and the accounting methodologies they use. As an example, there are a number of differences in financial activities and methodologies used in small businesses compared to large corporations. For the most part, financial accounting divides into three general categories: income and expenses; assets, liabilities, and equity; and transactions and general entries. The section breaks these three categories down using simple explanations and a number of helpful examples. This has been broken down under the headings: The Basics of Accounting (Accounting 101), Scenario and Definitions, Understanding the Scenario, Understanding Debits and Credits, and Putting It into Practice.

Another of the key finance concepts covered in this section is the accounting equation. The accounting equation is a vital calculation that guides financial activities for individuals and companies. The equation is: Assets = Liabilities + Shareholder Equity. Essentially, the accounting equation shows that what a company owns (its assets) are paid for by either what it owes (its liabilities) or by what its owners have invested (the shareholders’ equity). This is a crucial concept for any entity and learning how to manipulate and implement this formula can be extremely useful.

3. Analyzing Financial Statements

The next focus area in the “Financial Accounting Homework Solutions” is analyzing financial statements. This is because financial statements are delivered to a wide range of users and therefore it is important to use a variety of methods to analyze the data. Firstly, when you start to conduct analysis on the balance sheet, it could be useful to perform vertical analysis. The main advantage of vertical analysis is that each of the individual assets, liabilities, and equity items is expressed as a percentage of the total assets. For example, if the freehold premises is $250,000 and the total assets are $1,000,000, then the freehold premises will be expressed as 25% ($250,000/$1,000,000). This is useful because it enables the financial information to be considered in a way that is relative to the size of the business. This will help the users to spot whether a particular account or a group of accounts are showing a larger or smaller proportion of the total assets over time and hence give an indication of continued financial stability. Secondly, analysts could use the accounting information to calculate financial ratios. These are a technique used by problem solvers to help understand more about the conditions and trends that a business is under. For example, the gross profit percentage is a comparison between the gross profit and the sales. A higher percentage indicates that a business is generating more gross profit as a percentage of sales and is a positive sign for problem solvers. On the other hand, the current ratio is a comparison between the current assets and the current liabilities. A higher current ratio indicates greater ability of a business to pay its debts over the next 12 months and therefore gives confidence to lenders. Passionate about problem solving, the writers have included a number of different problem questions within the book to encourage students to apply their newfound knowledge of analyzing financial statements.

4. Applying Financial Accounting Principles

This has been a long journey full of learning, understanding, and curiosity, but all of it’s very interesting and has brought me to the point where I feel comfortable in applying the financial accounting principles. However, anticipating trial balances is just the beginning of the widely accepted accounting principle in action. This process, also known as the closing of the books, is the 8th step in the accounting cycle. This is where the accountant combines and arranges all the information and, above all, ensures that the trial balance is free of any errors. It’s very important to submit all the work in ensuring that the customary and acceptable accounting principles are followed accordingly. For example, in real-life accounting, there are specific forms that we need to put the financial statement figures in, such as how revenue is reported in the income statement. It is commonly used in the income statement for it to carry a ‘single step’ format where it’s simply just itemizing the revenues and then listing all the expenses that might save a lot of time and cost when locating and recalculating. On the other hand, we may use a ‘multi-step’ format which basically divides the income statements into two sections which are ‘the operating’ and ‘the non-operating’ and then several cost of goods sold is included in a subsection under the operating expenses. Different income levels could be analyzed and computed easily. I believe that this book has provided a much clearer understanding and exposure to the application of the principles in financial accounting. Especially in this chapter, we have gone through the importance of applying the principles and a brief summary of these principles. This will definitely help us a lot in leading success in the accounting career. I have benefited a lot from this book and I surely hope that my beginners luck in studying financial accounting would not just stop right here. However, I would carry on and transfer this valuable piece of knowledge throughout my career journey. I would definitely refer back to this book whenever I’m in doubt in my further studies and work. With the technology around us and the advancement of it, I believe that the research and informational content in this book needs to be continually updated and revised in order to provide an up-to-date and comprehensive guide for students and, of course, to the accounting professionals as well.

5. Conclusion

Throughout my years in both banking and academia, it is amazing to see how many researchers are trying to find enough evidence to support the fact that if they are given more freedom in terms of financing decisions, firms can perform so much better and as a result, benefits of financial statement analysis are going to be maximized. We all know the stronger a firm is, the more it can maximize its value, and the more its competitiveness can be formed; same thing for the financial analysis. I do agree with the researcher who said analyzing financial statements is really analyzing the firm’s financial position and its utilization of funds; and it is about to reveal the weaknesses as well as the strength of the firm. Also, financial statement analysis is about to select the most relevant information from the financial reports in order to achieve the objective of the analysis, no matter if this is a credit decision, an investment decision, and so on. In practice, we always have different stakeholders to be believed, for example, contract design theory has proved that the different accounting methods may make a difference on the decisions; and if the most accounting information itself cannot satisfy some sort of common consensus to all the stakeholders, guess the auditors’ adjustment will play the most important role. When we are talking about the statement that audit is just a mechanism for practical consensus and through it, a ‘truth’ may be achieved, maybe we can link to the efficient market hypothesis that assumes the investors rationally processing the accounting and other information so that we come up with a given share price. All this sound perfect; however, unfortunately, in reality, investors should always be reminded of the significance of the auditing work from time to time because market efficiency is a matter of gradation, it is not simply there or not. Well, just something we want to say before concluding the section.