the accounting homework help

the accounting homework help

The Fundamentals of Accounting: A Comprehensive Guide

1. Introduction to Accounting

Accounting is as important to our society as insulin or aspirin. Without accounting, businesses could not survive. It is the accountant’s job to help businesses, government agencies, and other organizations operate efficiently. The service the accountant provides is as important as the product a company produces. In addition, the public depends on professional accountants to prepare such necessary financial statements as the income statement, the balance sheet, and the statement of cash flows. Many goods and services would either be too expensive or not exist without accountants. In countries that struggle with economic hardships, the public loves to bash accountants and accountants’ perceived riches and greed; to businesses, however, accountants are heroes.

In this book, we discuss the features underlying the accounting concept, the purpose of a balance sheet, and the significance of the income statement. Many describe the procedures and rules of accounting as though they were scientific formulas or physical laws. Despite such lofty descriptions, accounting can be a somewhat simple or a very complicated process, but it is an important one nonetheless. Most of us use accounting in one form or another. At some point, we face it in our everyday lives. If we are to save and then spend our money wisely, we need to understand the role accounting plays in accomplishing our goals.

2. Basic Accounting Principles and Concepts

Assumptions in accounting Accounting is based on certain broad principles or assumptions. These are: (i) The separate entity – The business is treated as an entity separate and distinct from those that own it. (ii) Continuity – This assumption supposes that a business will continue to operate indefinitely. Normally, the business is assumed to have an indefinite life, unless information is available that suggests otherwise, for example, the impending death of the owner or the decision to liquidate the business or a significant number of employees or customers reacting adversely to the actions of the owners. (iii) Going concern – This includes the continuity concept, but providing an added assumption: that the business will have sufficient liquidity to meet its short-term obligations as they fall due. (iv) Historical cost – Normally, a business records assets at the amount of cash or cash equivalents that were given up in the purchase of the asset.

Accounting concepts Generally, accepted accounting principles (GAAPs) have been developed to provide a standard evolvement of properly reported accounting information. Being affirmative, the principles are based on some underlying concepts. These concepts provide a logical framework, on the stability of which the principles can rely. They are like the angle ribs of a building on which the roof of generally accepted accounting principles rests. A closely flowing strength, provided by these concepts, helps in safeguarding the GAAPs against the insured forces of other disciplines, such as economics, sociology, psychology, and political science. The four underlying concepts are:

3. Financial Statements and Analysis

The concept of presenting financial information in the form of financial statements is of paramount importance. An analysis and interpretation of the diagnosed financial data do not convey full significance unless the data are presented in a structured manner. The laymen who may have neither knowledge of accounting nor the underlying business likewise demand the information consisting of activity summary. Financial statement analysis is the logical development of these simplified financial statements, particularly as an aid to those outsiders who are expected to supply intelligence as a change of ideas. Management and employees are so continuously involved in the business entity that outsiders should take an active interest by studying financial statements reflecting operating results and accounting indicators of the entity’s strength and weakness. The stakeholders in the entity such as suppliers, customers, and the remainder of the public should be able to make logical inferences of the entity’s business and the potential of its continued progress.

These statements are the balance sheet, the income statement, the statement of change in the financial position, and the statement of change in the equity. The value of data contained in these financial statements is much enhanced if these statements are supplemented by other helpful reports. Also, the statements must be suitably analyzed to make the information meaningful to the individual users and such analysis ultimately leads to financial theories or principles. Preparing meaningful financial summaries is the objective of financial accounting fundamentals, and financial statements are the principal reports serving as aids to interpretation. Unless basic principles are observed, the information misinterpretation problems will be magnified. There is a strong relationship assumed to exist between proper construction of financial statements and correct business and investment decisions. Data components of financial statements can be reported or interpreted with confidence if the financial accounting principles are properly employed. These principles bridge the gaps between basic business techniques and data summary in the form of reports. The ultimate objective is to supply decision-guidance data to potential investors, especially stockholders, lenders, and management. When the data represents standard utility, those needing those aids will anticipate improvements in their work abilities.

4. Managerial Accounting Techniques

The major areas of management accounting include the following:

Cost accounting: – An examination of how manufacturing and nonmanufacturing costs are accumulated, analyzed, and used. – Reporting of cost (servicing, selling, and distribution) information on an as-needed basis. – The principles of cost identification and product cost stabilization are also part of the activity.

Budgeting and budgetary control: – Preparation of budgets, establishment of responsibility, and using the budget as a guide to performance. – Adapting flexible budgets to the organization’s actual level of activity. – Executing corrective action when actual results differ significantly from the budget.

Standard costs: – Analyzing differences between standard and actual manufacturing costs and determining their likely causes. – Establishing standard materials, labor, and overhead quantities and costs. – Establishing and implementing procedures for obtaining special authorizations and approvals of non-standard costs.

Cost/volume/profit relationships: – Assessing the cost behavior that exists in the organization. – The establishment of formalized relationships between costs and volumes to estimate the breakeven point, target level of revenues and/or cost. – Determination of costs and profit at the various volume levels.

Profit and sales cost analysis: – The evaluation of revenues, costs, and margins by the product line and by product within the line. – Assessing the results of alternative strategies dealing with sales mix, prices, and capacity utilization.

Statistical process control and cost control: – Monitoring outcomes and initiating actions based on the statistical evaluation of expected.

Capital expenditure analysis: – Identifying and comparing the most profitable alternatives using discounted cash flow, project ranking, and other analysis. – The establishment of procedures to ensure project performance and results measurement.

5. Advanced Topics in Accounting

4. Business Exceptional Items

Journal entries are very important to accrual-based accounting. They are used to ensure the firm knows what it owns and owes. More fundamentally, journal entries ensure the Income Statement and Balance Sheet are not distorted by timing differences. Journal entries also ensure there are no errors in the accounting. In this article, more complex journal entries are considered.

Income Statement

This is the “bottom line” impact, also known as the net income or loss impact. It is the impact on the equity of the business. When the firm performs a function, it will pay for the rent, workers, and materials associated with that function. Once these expenses have been paid, the firm is said to have earned its income for a time period. The residual income is retained and becomes part of the ownership interest in the firm (if the firm is operating at a profit).

Balance Sheet

This is the “above the line” impact, also known as the balance sheet impact. It is the net impact on the total assets of the business. The net of all balance sheet movements for the period is observed as the “change in the retained earnings” between the two balance sheets that are compared.

Introduction to Accrual-Based Accounting

The key concept of accrual accounting is that expenses must be recognized (matched with) the revenue they helped generate, regardless of when the expenses were actually paid for (accrued). This is important to ensure an accurate portrayal of the occupation of assets, the performance of a business, and the profit or loss of the business. Accrual-based accounting compares a business’ performance before and after tax.

Statement of Cash Flows

The Statement of Cash Flows includes the Cash Flow from Operating Activities, Cash Flow from Investing Activities, and the Cash Flow from Financing Activities. These activities include expenses not included on the income statement, as well as interest and dividends received from investing in other businesses. Furthermore, information is given on the changes in equity and borrowing, which can affect the company’s ability to continue as a going concern. To achieve the management’s all-important goal, cash flow from operating activities is sometimes used as the measure of choice in establishing the funds flows target of other sections of the business.