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Financial Statements
A financial statement is a record of the financial activities of a person or business entity where all related financial information are presented in an orderly manner and can be easily understood.
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Assets are write off if asset has completed it's useful life or can be disposed of if it has become obsolete or another reason is that if company wants to purchase asset with new technology as well.
Why international accounting standard board formulate accounting standards?
The IASB has developed IFRS (International Financial Reporting Standards) in order to fufill the public interest for "high quality, understandable" and internationally comparableFinancial Statements. This is due to Globalisation and the free flow across borders of Capital. There is a need for a single set of "rules" by which accounting material is prepared.
For example:
In the past there was a case of a manufacturer that was listed on the Stock Exchange in two countries (The US and Germany- their home nation).
They had to create two sets of financial statements in order to fufill the rules of the Stock Exchanges.
This for one had an added cost to the firm but also resulted in the firm publishing a substantial profit in one country and a large loss in the other (due to the different preparations).
This basically negated any value that the Financial Statments would have thus the need for International Standards so that regardless of the countries listing country any investor could understand and use their Statements.
Why owner's equity is affected by the choice of particular asset and liability measurement?
Cleopatra
Not very unusual. Total Cash Flow is the total from cash from opertating activities, investing activities and financing activites.
Postive Operating CF and negative Total CF could mean heavy investement for future growth (Plant, Property, Equipment etc) or the repayment of debt (or Capital Restructuring- share repurchase etc)
I would say that the inverse, while still not unusual would be somewhat concerning. Where Operating CF is negative and Total CF is positive. As this would mean your operations are not generating cash and you have resorted to Sale of Assets, Acquiring Loans, Share Sales etc to generate Cash.
The "unsualness" is all dependant on company policy.
Are wages payable listed on an income statement?
No, but Wages Expense would be listed on the income statement.
Wages Payable would be a liability account, and would be shown on the Balance Sheet under current liabilities. This account would state how much the company still owes its employees for services rendered.
Wages Expense, on the other hand, would be the expense recognized in the year (shown on the income statement) for the services of the company's employees, whether the amounts have been paid out or not.
Why do wages appear in the trading profit and loss account?
Because they are Expenses and are supposed to be deducted so as to ascertain the real value of profits earned in a given period of time
Do decrease in accounts receiveable decrease sales?
Generally, those two accounts tend to move in the same direction. It is typically driven by Sales, though.
If Sales in a year increase, it would be expected that Accounts Receivable (A/R) would increase as well because typically a proportion of Sales are paid in cash, while another proportion is charged to credit.
If a company's Sales are generally made up by 1/2 cash and 1/2 credit, if Sales increased substantially in the year, we would expect A/R to increase as well.
If, however, Sales in the year plummeted, we would also expect A/R to decrease from the previous year.
(This is also assuming the company has not changed its policies regarding how it extends credit to customers, and is collecting its receivables in a timely manner.)
Is cash considered an asset liability or owners equity?
Cash is an asset. It could also be part of what makes up an owner's equity.
Trial Balance
Is the adjusted trial balance a financial statement?
In and of itself, generally no. An adjusted trial balance is merely a statement that is used at the end of the accounting period to adjust accounts such as expenses and income and to insure that all adjusting entries and accounts balance before preparing the post closing trial balance and finally the financial statements such as Balance Sheet, Statement of Retained Earnings, and Statement of Owners Equity.
Why is owner's equity a special liability?
As owners equity is likely to be paid back only at the closure of business entity, this is considered as special liability, the special being " liability to be paid at the end".
a withdrawl
Where is the accounts receivables located on the balance sheet?
Accounts receivable is located on the left side of the balance sheet under the current assets.
Why is it important to adopt a consistent basis for the preparation of financial statement?
Comparability. It is important to allow users of financial statements to compare statements in order to identify trends within an industry or entity and to assist the relative performance of a company across time and across a specific industry.
See IFRS: Frame work for the Preparation and Presentation of Financial Statements (A39- 42)
Further as the basis by which the entity prepares its financial statements needs to be disclosed ( And changes in policy elaborated upon) it also inhibits adopting favourable accounting policies on a whim in order mislead users of financial statements
What 3 groups of people who will be interested in the financial statements of a sole trader?
The trader himself, tax man and the bank
