0
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.
5,583 Questions
Is 0.40 to 1 a better return on net assets ratio than 0.45 to 1?
RONA is Net Income divided by Fixed Assets + Net Working Capital. Thus, higher the ratio, higher is the return on net assets. So the anwer to your questions is NO. 0.40 to 1 is not a better return on net assets ratio than 0.45 to 1.
A revenue expenditure is anything that relates to the day to day running of the business; for example, wages and salaries.
Is it acceptable practice to use unaudited reports for financial analysis?
You can analyze un-audited financial statements, buy you have to keep in mind that your ratio analysis, vertical analysis, and comparative analysis may be (probably are) inaccurate as to the companies 'real' financial position. You'd have to take any un-audited analysis results with a grain of salt. If you're buying a business, the seller should pay for the audit, or make sure there has been an audit of the statements in the past 2-3 years atleast so you can work with something real.
What is 'window dressing' in accounting and finance?
It is making a situation appear better than it actually is. For example, in the case of a US firm with a foreign subsidiary...the firm may want to borrow money in the foreign country because the rates are lower there. So the firm makes the subsidiary profits appear better than they actually are so it is easier to get a loan in that country.
What is the definition of total gross taxable revenues?
"Total gross taxable revenues" means revenues from all your sales which are subject to tax.
== == Total Revenue - Exempt Revenue = Taxable Revenue
Exempt revenue - Eg. a sale made to the Government .. You do not have to pay tax on it since you do not charge them with tax. (This example may not be applicable to all countries)
What is Errors Omissions EO coverage with a minimum aggregate of 300000?
Erroros and Omissions is a type of insurance for professionals (much like malpractice for doctors) such as an insurance agent or accountant. It protects them from unintentional mistakes they may make in the course of their work. For example an insurance agent writes a policy for $30,000 instead of $300,000. The aggregate limit of $300,000 refers to the total amount of coverage available during the policy period. Some policies "reset" policy limits after a claim is resolved but policies with an aggregate limit get chopped away at by each claim and can eventually be drained to $0.
What are the basic benefits of developing pro forma statements and a cash budget?
The basic benefits and purposes of developing pro forma statements is the firm is able to estimate its future level of receivables, inventory, payables, and other corporate accounts as well as its anticipated profits and borrowing requirements. The basic benefits and purposes of developing a cash budget are to allow the firm to anticipate the need for outside funding at the end of each month.
When property is sold is the cosigner entitled to any profit from the sale?
The co-signer should be entitled to any monies they contributed to the original sale, plus appreciation. co-signer on what the mortgage note,or on the title to the property?A co-signer on a mortgage note means nothing if it's recorded in just one persons name or you quit claimed your interest to the other person.If both people are on title when the house is being sold you would each get 50 percent of the proceedings unless it stated different in the documents or contract that was signed.
Well very simply...cash is generated from sales and many other things (whether they make a profit or not). But generally, expenses that use cash are incurred at some other time. Also, frequently cash can become something else...say a company uses cash to buy a building, or inventory...it still is worth just as much as before...just the asset of cash is now an asset of some type of property. No profit or loss was made...(maybe later on sale of the property)...but cash was reduced.
For instance, "depreciation" is subtracted from net income, but doesn't actually cost you any money. To answer both questions, say a company sells 100 dollars worth of product that cost 50 dollars to make. The net cash flow is 50 dollars. Now say they had to buy a new capital machine that cost 100 dollars, their net income would still be 50 even though their cash flow was -50. This is because capital expenditures are not "expensed" immediately but are "depreciated". So the next year under the same scenario with no capital expense if you show 50 dollars of depreciation you would have no net income but positive cash flow.
Not only is depreciation a factor, but almost everything that takes place in the business. You can sell something today (increasing income) but not collect the cash until later. Thus, income is increased, but cash not until later. Similarly, you can buy something, deduct it from income, but not pay for it until later. The timing of real cash receipts and real cash disbursements is different from the timing of the transaction. It is the actual sale or purchase than can affect income, but only the actual collection or payment of cash will affect "cash flow," i.e. the flowing of cash into and out of the business.
The above does a good job of describing some of the reasons. Some others related to those to are - most business need to use accrual method of accounting, not cash method. However, even those that may use the cash method can have what you inquire about. The use or generation of cash is entirely different than the making of a profit.
For example, in one year you may expend a lot of cash to buy an investment...whether you make a profit that year or not is dependent on all the other operations of the company....(and for conceptual purposes, say all of them are already paid for). The some years later, same biz, investment Co with everything paid for, no revenues or dividends coming from the investments - they are all just "raw land" or something. Therefore, under cash method, this year they sell something. Positive cash flow. Did they make a profit? Well that all depends on if what they sold they paid more (or less) for than they sold it for!
Cash flow and profit are comparing raw apples and well cooked green beans.
To correct the original post, depreciation isn't subtracted from net income. Depreciation, along with the other expenses of doing business, is subtracted from revenues to arrive at net income.
An example of how a company could have positive cash flow from operations in the same year as it has a net loss:
- Frank's Wholesale Felines sells 1000 pure-bred kitties to pet shops at $500 each during 2007 for revenues of $500,000. Frank paid $200 for each of the kitties to the breeders and incurred a further $100,000 in related expenses (wages, rent, kitty litter, etc).
- To make the example simple, assume that all transactions are cash
- Frank's business would therefore (in simplified terms!) show positive cash flow from operations of $200,000.
- However, around Christmas time some Animal Rights Activists freed 500 kitties (worth $100,000) and torched Frank's warehouse (book value of $750,000).
- Assuming this isn't a common occurence, it wouldn't be considered a business expense. Therefore, it wouldn't affect the cash flow from operations.
- This would probably qualify as an 'extraordinary item' on the income statement, which is a loss that appears further down from the operations info, net of tax implications.
It might also be helpful to discuss the difference between accounting income, which is accrual based, and cash flow.
According to Canadian GAAP, revenue must be recognized (ie, presented in an income statement) when performance is achieved, measurability is reasonably assured, and collectibility is reasonably assured.
Notice that revenue is recognized when collectibility is reasonably assured - not when money is actually collected.
A simple example:
- Alex & Co. is a new web design company. In order to attract business, customers spending more than $10,000 don't have to pay for 1 year.
- Once the work is done, and assuming collectibility is reasonably assured (and it would have to be - otherwise they wouldn't do the deal, right?) the revenue should be recognized, even though they won't actually get paid for a year.
- Meanwhile, Alex still has to pay his rent, his wages, etc.
- Voila, negative cash flow, positive income (assuming revenues exceed expenses, of course)
How can a rapid increase in sales produce a negative cash flow?
Most people are accustomed to going to the store and paying by cash or a credit card and these types of transactions always result in positive cash flow to the business. Imagine however that you are a manufacturer. While you might get an order (which is of course a sale), you now have to produce that order which means any material suppliers might theoretically need to get paid before you get paid from your customer.
How can leverage be used to increase a firm's profitability?
Leverage utilizes other people's money in the form of loans, to make the firm's existing money do more. Say a firm (or an individual) has $10,000 in capital, and an opportunity to make a 10% profit on an particular venture. That means they have the opportunity to realize a $1000 profit. If however, that venture, or some other, can return 10% on an even greater amount of money, say $100,000, the return would be $10,000. If the firm's $10,000 will allow it to get a loan for 90% of the venture, then the firm will keep the return from the $100,000 venture ($10,000), so that the profit is 100% rather than 10%. Of course, there will be costs associated with borrowing and repaying the $90,000, let's say $1000. The firm's profit is now $9000, still 9 times the return from a non-leveraged investment. So borrowing money to increase the power of your own money is what leverage is. Anyone who has a home mortgage is using leverage. The time period doesn't matter, the principle is the same. And it's possible to be 100% leveraged, that is to have no money of your own in a venture. The downside is, if the venture doesn't pay off or loses money. The loss gets leveraged back to the borrower. A $10000 dollar investment that loses 40% costs the firm $4000. A blow, but maybe survivable. That 90% leveraged $100,000 deal, if it loses 40%, costs the the firm $40,000, which could be crushing.
What is off-balance-sheet financing?
In my Point Of View Off antipode breadth usually bureau an asset or accountability or costs movement not on the accession antipode sheet. An analysis of costs in which abounding basal expenditures are kept off of a company's antipode breadth through different allocation methods. Companies will about use off-balance-sheet costs to accrue their debt to disinterestedness and advantage ratios low, abnormally if the admission of a abounding bulk would aperture abrogating debt covenants.
Some accession may acquire important amounts of Agee breadth assets and liabilities. For example, cyber banking institutions about action asset administering or payment casework to their clients. The assets in canon about antithesis usually accordance to the abandoned admirers afresh or in trust, while the accession may board management, anal or added casework to the client. The accession itself has no complete affirmation to the assets, and usually has some basal fiduciary duties with annual to the client. Cyber banking institutions may abode age breadth items in their accounting statements formally, and may as well ascribe to "assets below management," a bulk that may awning on and age breadth items.
How do you evaluate a company?
Any Pharmaceutical company is evaluated basing on various fields like economy,marketing,how its products are developing confidence in the patients regarding their therapeutic efficacy.also how cost effective products it can release into the market.and apart from that it should produce novel drugs that are used for dangerous diseases(anthrax,AIDS ETC)
What is the explanation for the function of Zanzibar Revenue Board?
to collect and account for revenue
The King III Report by the Institute of Directors sets the bar for financial accountability. Also its predecessors, King I and King II reports.
The other two are not known to me.
When was the Governmental Accounting Standards Board established?
The Governmental Accounting Standards Board (GASB) was organized in 1984 under the auspices of the Financial Accounting Foundation.
Differences and similarities between managerial accounting and Financial Accounting?
* Cost accounting relies on financial accounting information (unbiased, support material) * both are concerned with responsibility or stewardship to the organization: financial accounting has responsibility to the whole company while cost accounting is concerned with responsibility for parts (costs and revenues) * Both require accounting information that must be relevant, timely, and accurate.
Give a example of juxtaposition?
A juxtaposition is placing two opposing things close together to emphasize their differences. An example of juxtaposition is the opening lines of "A Tale of Two Cities" by Charles Dickens: "it was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness".
True
What Factors determine profit and losses?
Whether the business has lots of competition, has a high sales revenue.
According to International Financial Reporting Standards (IFRS):
"The cost of an item of property, plant and equipment comprises:
(a) its purchase price... after deducting trade discounts and rebates
(b) any costs directly attributable to bringing the asst to the location and condition necessary for it to be capable of operating in the manner intended by management." IAS 16 par 16(b)
The basic principle for capitalization of costs on initial recognition, is that only directly attributable costs can be capitalized. This means costs eligible for capitalization are its purchase price and costs to bring the asset to the location and condition necessary to function as management intended.
An extended warranty should therefore not be capitalized along with the cost of the asset, as the physical asset would still be in the location and condition necessary to function as management intended regardless of whether or not the extended warranty was purchased.
How can you calculate goodwill of a company?
Business Combination and Goodwill Business combination are events or transactions in which two or more business enterprise or their net assets, are brought under common control as a single accounting entity. The term "Mergers and acquisitions" are also referred to as business combination. Product diversification and integration are two of the more common reasons for business combinations. Diversification refers to the production or sale of many different products, while integration means production or sale of the same product. Integration may be horizontal,i.e, combining two companies selling the same product, or vertical, i.e, two businesses engaged in different of production or distribution of a common product. Diversification and integration can be accomplished by internal growth, but external acquisitions result in faster accomplishment of goals. ---- Accounting for business combination is a very complex and controversial issue but extremely important due to the magnitudes of transactions involved.A business combination is handled in either of the two basic ways: 1) as a Pooling of interest or 2) as a purchase. Pooling of Interest Method In this method, the consolidated balance sheet is constructed by simply adding together the balance sheets of the combined companies. In essence, the concept of a pooling of interest is that nothing of real economic substance has occurred in the combination. All the previous shareholders remain as shareholders, the assets of the combined companies are same as before. Canadian accounting requirements are such that the pooling of interests method is rarely used, but it is fairly common in the United States. There are two conditions to be met before the pooling of interest method may be used: # The transaction must be accomplished by an exchange of voting shares, and # It must be impossible to identify one of the combining firms as the acquirer. Purchase method The purchase method is based on the assumption that a business combination is a transaction in which one entity acquires the net assets of other combining companies. The acquiring company records net assets received at fair value at the date of combination. Any excess of cost over the fair value of net assets acquired is allocated to goodwill and amortized over a maximum period of 40 years. Comparison of the two methodsWhen business interest of two companies are combined under this method, there is no recording of goodwill. Under the purchase method, goodwill is recorded as a result of purchase of a going concern, if the purchase cost is greater or less than the fair value of net tangible and identifiable intangible assets acquired. The goodwill has to be amortized over the years and is a non-tax deductable expense. As a result, the earnings of the new entity reduces and lower earnings are recorded per share. For example, when Philip Morris acquired Kraft Inc. for $12.9 billion in 1988, the fair value of the Krafts assets was only $1.3 billion. The difference , a staggering $11.6 billion, or 90% of the purchase price was goodwill. Philip Morris has to amortize this amount in 40 years, deducting $290 million a year from earnings - about $1.25 a share. In the pooling of interest method, there is no goodwill and thus no amortization expense is involved resulting in higher EPS. Also, there is no uncertainties in determining the purchase price under the pooling of interest method. ---- Accounting Methods For Goodwill The three qualitative characteristics most directly concerned with goodwill are reliability, prudence (not deliberate understatement) and consistency. Although much has been written on the problem of accounting for goodwill during the past century, a solution remains elusive. The treatment of goodwill has changed over the years. The four different methods of accounting for goodwill are discussed in the following paragraphs. 1. Write-off Under this method, goodwill is immediately written off against an account in the stockholders' equity section, generally retained earnings. Advocates of this method argue that goodwill is not measurable and has no true future value. Thus, it should be written off against stockholders' equity. Another rationale for this method is that overpayment for the assets of an acquired company represents the expectation of superior future earnings. Since these earnings eventually endup in the stockholders' equity, they can be offset against the excess acquisition payment. Writing off goodwill immediately can lead to distorted results when tangible assets are undervalued allowing goodwill to be overstated. Even though there are some good arguments for write-off method, it appears that it was used because it was the easiest and most widely used and not because it was conceptually correct. 2. Capitalization This approach's proponents argue that if goodwill is as important as asset as many beleive, it belongs on the balance sheet. One problem with capitalization of goodwill is determining the proper amount to capitalize. Current practice follows the residuum approach. One way of correcting the misuse of goodwill is through the hidden assets approach. Under this approach, the excess purchase price that companies pay over fair market value of the assets is for assets that are hidden from the balance sheet. Hidden assets should be identified and recorded on the balance sheet, then amortized over their useful life. If they were, goodwill account would probably be much smaller than in current practice and financial statements would probably be more useful. 3. Non-AmortizationCapitalization of goodwill without amortization allows the most advantageous financial reporting figures. A company gets to record an asset instead of a decrease in stockholders' equity and net income is not periodically reduced. However, it probably would result in more abuse than any other method. The rationale for non-amortization is premised on the notion that goodwill does not decrease in value. High managerial ability, good name and reputation, and excellent staff generally do not decrease in value but they increase in value. Goodwill could be viewed as an investment and should stay on the balance sheet unamortized. But, without amortization, abuse may occur, and the goodwill account will lose what limited significance it has now. 4. Amortization Amortization enables companies to match the cost of intangible assets over the period deemed to benefit from their acquisition. Main arguments for amortization are the abuse of non-amortization and the unreliability of earnings without some attempt to recognize the impact. When amortization became required, the period for write-off became the focus. If the life of the asset is non determinable, which is normally the case with goodwill, amortization over a maximum of forty years should be used. This lengthy period was set to allow a minimum impact to the net income.
What is journal entry for Accrued Revenue?
Accrued Revenue is a term that I rarely see, though it is an Asset and should be treated as such. Accrued Revenue would be treated similar to an Account Receivable. The Journal Entry would be a Debit to Accrued Revenue and a Credit to Revenue.
The general rule is that you capitalise only proper nouns. You do not capitalise "literature" unless the context requires it. For example:
I am taking English Literature in my first year of college.
I don't really like literature, but I need to fulfill my English credits.
There were no other literature classes that appealed to me except English Literature.
