DQ1 I would not consider liabilities a bad thing. Companies are able to grow as they mature due to the fact that these firms finance a portion of their growth through the acquisition of debt. When companies become publicly traded enterprises they have more access to debt instruments…
A way to determine whether the debt balance of a company is bad is by calculating the debt ratio and the current ratio. The debt ratio shows the ability of a company to pay off its long term debt, while the current ratio demonstrates the ability of a firm to pay off its short term debt. DQ2 The use of cash based accounting is more suitable for small operations that are highly dependent on the short term income to stay in business. An example would be a hot dog vendor. The hot dog vender uses the weekly sales to purchase more material to operate the next week. The hot dog vendor collects all his sales in cash. The majority of public corporations use accrued based accounting because they deal with large sums of money and numerous transactions. The existence of credit does not work in accounting unless the firm used an accrued based accounting system. In cash based accounting credit is not existent. Despite the differences between cash based accounting and accrued based accounting the application of both systems will lead to the same accounting results. For example if the net income of a company is $10,000 under cash based accounting the use of accrued based accounting will also give a net profit of $10,000. ...
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In the aftermath of the Enron case in United States the investment community doubted the credibility of financial information. It is extremely important for users of financial information to trust the work being submitted to them by accountants. Ethical standards are very important in the accounting profession.
The classified balance sheet is prepared in order to let the users distinguish among the different accounts. The statement of cash flow is very important as well. The main components of the statement of cash flow are operating, financing, and investing activities (Weygand & Kieso, Kimmel, 2003).
The existence of inventory creates added costs for companies such as freight costs to acquire the merchandise and the cost of maintaining a warehouse to store the inventory. Companies in the retail industry have inventory of items that are ready to sell. In a manufacturing company there are different types of inventory.
When convertible bonds are issued in small quantities the diluting effect is insignificant or nonexistent. A convertible bond ratio exists to determine how many shares each bondholder will receive for each bond certificate (Investopedia, 2011). I also liked your comment in regards to the benefits of convertible bonds.
The term liquidity in accounting refers to the ability of a company to generate cash to pay off its debt (Weygandt & Kieso & Kimmel, 2003). One of the best attributes of the statement of cash flow is that it divides the usage of cash into three categories of activities which are investing, operating, and financing.
The profit margin is a profitability ratio that is calculated dividing net income by total sales. I liked the approached you indicated of using horizontal analysis. Knowing if the company improved its profitability in comparison with past performance is vital information an investor should have at their disposal when making a buying or selling decision of a common stock.
The dual entry journal system was created by Luca Pacioli back in 1494 (Luc). The founding principles of accounting can be very useful for anyone in their everyday life. Understanding more about finance and accounting can help people apply that knowledge to make better financial decisions and to keep a more accurate and detail personal budget.
With division of labor, each department has increased dexterity, more time is saved and advancements in technology hence improving departmental production and consequently production of the entire organization. Several factors
People, who have been successful in leaving a mark in the world with their deeds, were not born famous. The struggle they have faced during their life has actually molded their abilities and developed them to be efficient in
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