The economy just got out of a recession which hurt the liquidity of many companies. Selling receivables improves the cash position of a firm. A disadvantage of selling receivables is the fact that receivables are sold at a discounted price. The discount represents a loss of revenues for the firm. DQ2 The statement made by the president of the Keene Company regarding depreciation must be further evaluated to determine the validity of the statement. The premise of the statement was that depreciation does not come close to accumulate the cash needed to replace asset at the end of its useful life. The problem with this statement is that depreciation was not meant as tool to replace assets once they are retired. The purpose of depreciation is to decrease the value of the asset through time in order have a basis to determine the value of an asset. If depreciation was not used the value of the assets of a company would be overstated since physical assets lose value as time passes on due to wear and tear. Another consideration regarding depreciation is the method that the accountant uses. For example the MACRS depreciation method devalues the asset at an accelerated pace (Murraystate). References Besley, S., Brigham, E. (2000). Essential of Managerial Finance (12th ed.). Essential of Managerial Finance. Forth Worth: The Dryden Press.
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.
Perpetual accounting systems assume that the life of a corporation is indefinite. If the going concern assumption was not used the plant assets would have to be stated at liquidation value. The reason a liquidation value would be used without going concern is because without this assumption a business would have a set date when it would end.
The company that buys the receivables does so in order to gain a profit. Companies that buy receivables have to be careful as far as not overpaying for the receivables due to the fact that some of the receivables purchased will go into default. A way to determine the risks associated with the receivables purchased is to perform an account receivables aging schedule.
That interest rate does not even cover the yearly inflation rate of the nation. When companies are not reinvesting money in capital projects the best alternative is to invest money in the stock market. Companies invest in the stock market to have extra cash.
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 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.
Constitution were universal and should be shared with everyone. By the end of the 19th century, the Monroe Doctrine was to come into full effect in a war with the Spanish. Not only would the Americans take
43). On the other hand, Porter (2008b) noted, that industries characterized by suppliers possession of bargaining powers were less attractive (p. 13). Conversely, the bargaining power
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DQ1 Selling receivables is often referred to as factoring. Factoring involves the purchase of account receivables by the lender, generally without recourse to the borrower, which means that if the purchaser of goods does not pay for them, the lender rather than the seller of the goods takes the loss (Besley & Brigham, 2000)…