Introduction, review of accounting process and financial statement Essay Example for Free

Introduction, review of invoice process and financial statement EssayPart 1General acceptable business relationship principleGeneral accounting principles are set of rules generated by accounting board to guide accountant in readying and reporting of financial statements. General acceptable accounting principles are accounting guidelines (GAAP) consumptiond in United States and are issued by financial accounting example board (FASB). Other countries uses the guideline issued by international accounting standard board (IASB) supplemented by their own local laws. GAAP guide selection of events to be accounted for, the measurement of these events, and the mean of summarizing and communicating them to interested parties. In recording transactions GAAP make use of the following principlesa) historical embody principleb) tax income recognitionc) marching principled) full disclosureGAAP facilitate comparability of financial statement for various firms. Information that has been measured and reported in a similar manner for different enterprise is considered comparable. Comparability enables users to identify the real similarities and differences in economic phenomenon. Comparability is achieved when companies use similar accounting procedures (e.g. use of homogeneous inventory rule, depreciation) to account for similar economic circumstance (Porwal, 2008).Double entry accountingThis is the method of recording accounting transaction where every account entry must be accompanied by a credit entry and vice versa. If this method of accounting is not enforced then the base accounting equation i.e. ASSETS = LIABILITIES + EQUITY will not balance. Therefore double entry accounting is utilize to ensure that financial record are despatch and thus ensures that final statements give a true and becoming view of financial accomplishment at a given date otherwise if an accounting transaction is preserve on one side i.e. a debit or credit the balance canvas wil l not balance which demo an error in preparation of financial statement (Fridson Alvarez, 2002).Historical costHistorical cost is the original cost incurred in acquisition of assets. All assets and financial obligation are enter in financial statement under historical cost principle. Under this principle the exchange price established or cost incurred at the era a transaction occurs is the basis for initially recording assets and indebtedness. Cost is usually the best estimates of an asset or liability i.e. cost and fair value of an asset are equal at acquisition date. Historical cost principle ensures that there is consistency in recording asset and liability where assets are recorded at historical cost and subsequent loose of value is shown as depreciation and adjusted from historical cost to show the intelligence value of an asset at a given date.Accrual basis vs. silver basis accountingMeasurement of revenue can either be through with(predicate) accrual method or proper ty accounting basis. The two accounting method consists of rules that determines how and when set downs and revenue are reported. With accrual basis of accounting, revenue is recorded in the period in which it is earned and not necessarily when exchange is on-line(prenominal) fleck expenses are recorded when they have been incurred. This method of accounting is used by all publicly traded compevery and large businesses. With cash basis of accounting revenue is recognized when cash is received while expenses are recorded when cash is paid (Fridson Alvarez, 2002).The major difference between the two methods is that1). In using the cash basis of accounting there are no any payables or receivable recorded in the balance sheet while in using the accrual basis both receivables and payables are recognized in the balance sheet. While reporting revenue using accrual basis both collected and uncollected revenue are recorded while for cash basis only the cash standard collected from sa les and other activities are recorded. For instance if a customers pay $ 100,000 for goods which he has not yet received by the end of accounting period, using the cash basis this will be shown as revenue in the income statement but while using the accrual basis $100,000 is described as deferred revenue and will appear in balance sheet as current liability.On the other blow over when the firm deliver goods or offers a service but such amount remain outstanding at the end of the period using cash basis such a transaction will not be recorded but while using the accrual basis such amount will be described as accruedrevenue and will be recognized as revenue in the income statement and recorded in balance sheet as current asset (Siegel, 2007).2) In a cash basis report, only the cash paid to vendors are shown as expenses while in accrual reports both paid and unpaid amount are included as expenses. For instance if a familiarity pay rent amounting to $120,000 for 12 month but by the end of accounting period only rent for six month have been utilized using the accrual method $60,000 will be recorded as rent expense in the income statement while the remaining $ 60,000 are described as prepaid expense and are recorded as current asset in the balance sheet. For cash basis the whole amount of $120,000 will be recorded as rent expense during the current period.In preparation of financial statement the accrual basis of accounting is used where revenue is recorded in the accounting period it is earned irrespective of whether cash is received and associated cost used in generation of this revenue are also recorded in the same period. This is used in order to show the correct boodle generated by an enterprise during a certain period.Current assets and liability vs. non-current itemsAssets include anything of value that is possess or due to the business. Current asset are those that mature in less than one year e.g. inventory, debtors, prepayment and note receivables. Liab ilities represent a companys obligation to creditors. Obligations that have to be paid within one year are called current liabilities. In preparation of financial statement asset are recorded as either current or non-current while liabilities are dividendinto current and non-current liability and companies have to adhere to this rule of financial reporting.Part 2Bp groupBP group present it final statement in term of income statement, balance sheet and cash flow statement. All the statement are presented in vertical format and each item is shown together with the corresponding item in the previous year. The income statement shows the income generated and division of this receipts to various stakeholders i.e. among the total profit generated in year 2008 which amounted to $ 35,239 million the providers of finance received $1,547 million, government received $12,617 million and the shareholders received $ 21,666. The group balance sheet is dividend into five categories namely current assets, non-current assets, current liabilities, non-current liabilities and equity. The cash flow statement is dividend into three category i.e. the operating activities the investing activities and the financing activities. It financial statement are prepare in agreement with applicable UK law and international financial reporting standard.Quicksilver IncThe company also presents it final account in term of income statement, balance sheet and cash flow statement. The income statement show the profit generated and distribution to various stakeholders i.e. shareholders, government and minority interest. For each item in year 2008 the corresponding item in year 2007 and 2006 is also shown. The balance sheet is also presented in a vertical format where items are categorized into non-current assets, current assets, current liability, non-current liability and equity.The cash flow statement is dividend in to operating, investing and financing activities. It financial statement has bee n prepared in accordance with the familiar acceptable accounting principles.RTL groupIt general presentation of financial statement is like in above two companies with the balance sheet dividend in to current asset and liabilities vs. non-current item and equity. The balance sheet and income statement are prepared in vertical format and show corresponding figures of previous year.Cash from operating activities is the best measure of company performance since it indicates whether or not the company will be able to meet it financing and investing need. Even if the company may have generated sufficient profit it may be in financial difficulty and may even be declared bankrupt for failure to meet obligation of creditor. Higher profit may be as a result of a change in accounting policy and not improvement in performance.More breaker point relating to each companies associate and subsidiaries can be collected from the filing they make in the respective country in which they are incorpor ated and their final report.Predicting companys future trendQuick silverThe company net income increased by 19% in 2007 compared to 2006. In 2008 the net income increased by 11% and in the year 2009 income is expected to grow by between5%-8%. The company management also expect a hard time ahead due to current financial crisis which has led to a decline in household income and lower demand.RTL groupIn year 2008 revenue grew by 0.01% compared to and in year 2009 revenue are expected to decline by 2-5%. The company management and directors expect a drop in revenue in key market due to global economic crisis which has heightened the intensity of competition.Bp groupThe net revenue in year 2007 grew by 7% compared to 2006. In 2008 income grew by 27%. In 2009 revenue is expected to grow between 30-35%. Despite the harsh economic condition the management expects to increase it revenue earnings through higher fuel price.