Accounting Users And Characteristics Of Financial Statement Accounting Essay
Accounting is frequently baffled with book-keeping, which involves merely the recording of economic events and is hence merely one portion of the accounting procedure ”. Undertaking 1 is about the different users and their demands for Continental Limited fiscal statements. Accounting users divided into two users, it is internal users ( people within the organization) and besides external users ( people outside the organization) who use history to deduce fiscal information for their demands. Besides that, the features of these financial statements will supply utile information to the users. Continental Limited has an authorized portion capital of 1 million ordinary portions RM1 each. It operates sweeping and retail concern of selling a consumer’s merchandise. In undertaking 2, prepare the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by company manager or publication. The income statement is made by the company at the terminal of each twelvemonth to cipher the net income and loss incurred in concern during the twelvemonth. While, the balance sheet is made by the company at the terminal of each twelvemonth to enter the capital, assets, and liabilities of the company at the terminal of the twelvemonth.
In undertaking 3, prepare the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication. Distribution cost normally defined as the costs incurred to present the merchandise from the production unit to the terminal user. Besides that, administrative disbursals are referred to the costs of running a concern that is non-straight attributable to the production of goods or services. In undertaking 4, must establish on the income statement and balance sheet made in undertaking 2 and 3. Then, cipher the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 and besides necessitate to compare them with the industry norms provided to measure the profitableness and liquidness of Continental Limited.
2.0 Accounting users and Features of fiscal statement
Accounting information helps users to do better fiscal determinations in the organization. There have two different types of users in the fiscal information, there are internal users ( people within the organization such as direction, employees, and proprietors ) and besides external users ( people outside the organization such as a creditor, revenue enhancement governments, investors, and clients ) who use history to deduce fiscal information for their demands. There besides have five regulative features of financial statements that will supply utile information to the users. These standards must be fulfilled to do the fiscal statements and histories that are utile to the users. Therefore, the company should seek to fulfill the undermentioned standards when choosing and following the accounting constructs in fixing concern fiscal histories.
2.1 Accounting users
There have five different users and their demand for Continental Limited fiscal statements. The fiscal histories supply a wealth of information that is utilized to assorted users of fiscal information. The investor is worried about the hazard and return in relation to their investments. They need accounting information to cognize whether it is deserving for them to put in a concern or purchasing portions of the company. In add-on, clients and debtors are the people who purchase goods and services provided by the company. They need accounting information about the company ‘s fiscal stableness to guarantee that the company is an unafraid beginning of supply and no danger of holding to shut down. As clients of the company ‘s merchandise, they have a long-run concentration in the company ‘s scope of the merchandise and services. They may even hold to depend on the concern for certain merchandise and services. Besides that, a director is an individual appointed by the company proprietors to responsible for planning and directing the work of a group of persons, supervising the daily work of the company. They need accounting information about the company ‘s fiscal state of affairs as it is presently and as it is expected to be the hereafter to enable them to pull off the concern expeditiously and to do effectual control and planning determinations.
Another accounting user is providers or creditors, the people who provide merchandising goods and services to the company on recognition. So, they need accounting information about the company ‘s ability to pay its debts to guarantee its aggregation from the company. The creditors include providers every bit good as loaners of the finance such as Bankss. Furthermore, an employee of the company is people employed by the company to transport out concern activities. Therefore, they need accounting information about the company ‘s fiscal state of affairs. This is because their future callings and the size of their rewards and wages depend on it. Therefore, employees need information refering the stableness and go only profitableness of the organization. In the decision, accounting users are of import to the organization. This is because the fiscal histories supply information that is utile to assorted users of fiscal information.
2.2 Features of fiscal statement
First is understandability, it means that the financial statements must easy to comprehensible. Users of financial statements are assumed to hold adequate cognition of concern, economic activities, and accounting to analyze the information decently. Besides that, the feature of the financial statement is comparison. The fiscal histories made based on accounting constructs should be comparable within the entity and across entities. Comparability within the entity means that the financial statements can be compared with the old twelvemonth fiscal statements of the same company. While comparison across entities is means the fiscal statement can be comparable with the history of other companies.
Another feature of the financial statement is relevance. The fiscal histories prepared based on accounting constructs and policies should show relevant fiscal information that is capable of act upon the economic determination of the users. Therefore, fiscal statements are for users to do economic determinations, the information must be relevant to the determinations that those users have to do. In add-on, relevant fiscal statements are reasonable, if the histories are prepared to supply required information in the clip, it is relevant to the determination devising of the user. Contrary, if the histories are no prepared to supply information in the clip, it is nonrelevant to the determination devising of the user. Furthermore, the feature of the financial statement is dependability. Fiscal history must show dependable information to the users for determination devising. This property is linked to the faithful representation since users should be able to handle it as such. Users have assurance in dependable fiscal statements. Such statements are non misdirecting or intentionally constructed in a mode that could skew determinations or perceptual experience of the fiscal place or public presentation of an entity. It is deserving observing that the importance of auditing is increasing because it reinforces dependability ”. In add-on, the feature of the financial statement is accurate. The fiscal history must supply accurate fiscal information to the users for determination devising. The ground is, the inaccurate history information will take to the inaccurate determination made by the user.
3.0 Income Statement and Balance Sheet
The income statement is made by the company at the terminal of each twelvemonth to cipher the net income and loss incurred in concern during the twelvemonth. The income statement besides referred to as a profit-and-loss statement summarizes the company ‘s gross, disbursals, additions, and losingss for a period of clip, such as three months or one twelvemonth ”. While the balance sheet is made by the company at the terminal of each twelvemonth to enter the capital, assets, and liabilities of the company at the terminal of the twelvemonth.
3.1 Working for note inquiry
The closing stock should be recorded at cost or net resale value which one is lower. Since cost RM65000 & lt; net resale value RM70000, the cost RM65000 should be shutting stock value put in the trading history of the income statement and under the current plus in balance sheet.
Gross sales in trading history of income statement = RM360000 from TB + RM5000 = RM365000
Purchase in merchandising history of income statement = RM200000 from TB + RM 4000 = RM 204000
Stationery as disbursal put in P/L history of income statement = RM7000 from TB + RM300 = RM7300
Gross sales committee as disbursal put in P/L history of income statement = RM18000 paid from TB + RM1500 accrued at the terminal of twelvemonth = RM 19500
Then, accrued gross revenues committee RM1500 is recorded under the current liability in the balance sheet
Office wages as disbursal put in P/L history of income statement = RM28000 paid from TB – RM 2000 prepaid at the terminal of twelvemonth = RM26000
Proposed divided to be deducted from net income at the underside of income statement = 2 % x RM500000 Share capital from TB = RM 10000Then, the proposed divided RM10000 is recorded under current liability in the balance sheet.
4.0 Distribution costs and Administrative disbursals
Distribution costs besides known as distribution disbursals. Distribution cost normally defined as the costs incurred to present the merchandise from the production unit to the terminal user. The distribution cost points such as gross revenues staff ‘s wages and committee, passenger car outwards, depreciation of bringing new waves, advertisement and show disbursals. Administrative disbursals refer to the costs of running a concern that is nonstraight attributable to the production of goods or services. Administrative disbursals are related to the organization as a whole as opposed to the single sections ”. Administrative disbursals consist of such points as wages, legal and accounting charges, the depreciation of accounting machinery, public-service corporations, rent, and housework charges.
5.0 Accounting ratios
Accounting ratios are used to specify of import relationship between the figures shown on a balance sheet, in a net income and loss history, or in any other portion of accounting organization. Therefore, accounting ratios show the relationship between accounting information.
Ratio with expression Ratio computation for the twelvemonth 2010 Industry norm
- Percentage of gross net income on gross revenues = Gross net income x 100 176000 ten 100 = 49.58 % 30 % Net gross revenues 355000
- Percentage of operating net income on gross revenues = Operating net income x 100 74500 ten 100 = 20.99 % 18 % Net gross revenues 355000
- Capital employed = Closing capital + Long-term liabilities = ( Fixed assets + Current assets ) -Current liabilities = ( RM586000+RM172000 ) -RM51800 = RM758000-RM51800 = RM706200
- Tax return on capital employed ( ROCE ) = ( Net net income + Interest charges ) x 100 76500 + 3000 x 100 9 %
- Entire assets – Current liabilities 758000 – 51800 = 79500 tens 100 706200 = 11.26 %
- Current ratio = Current assets = 172000 2: 1
- Current liabilities 51800 = 3.32: 1
- Stock turnover = Cost of gross revenues Average stock value = Cost of gross revenues = 179000
- ( Opening stock + Closing stock ) / 2 ( 50000 + 65000 ) / 2 = 179000 57500 =3.11times
- Stock turnover period 365 yearss = 365 yearss 90 yearss
- Stock turnover 3.11 times = 117.36 yearss
- Debtor aggregation period = Debtor = RM63000
- Net recognition gross revenues RM365000 – RM 10000 = Debtor = RM63000
- Gross saless – return inwards RM355000 = 0.1777: 1
- Debtors collection period = Debtor ratio x 365 yearss =0.177 x 365 yearss 45 yearss =64.6 yearss
- Creditor ratio = Creditor = 25000
- Net recognition purchase 204000 – 15000 = Credit = 25000
- Purchase – Tax return outwards 189000= 0.132: 1
- Creditors payment period = Creditor ratio x 365 yearss = 0.132 ten 365 yearss 60 yearss= 48 .18 yearss
5.2 Profitableness of Continental Limited
The per centum of gross net income on gross revenues is 49.58 % is higher than industry norm is 30 % because the company is ineffective and inefficient in buying goods and services from the providers doing higher purchase cost and besides ineffective usage of stuff and labor causation higher production cost to diminish gross net income. In add-on, per centum of operating net income on gross revenues is 20.99 % and industry norm is 18 %. A higher per centum of operating net income on gross revenues indicates that the company is ineffective in its outgo control. Besides that, ROCE besides higher than industry norm is 20.99 % and 18 %. This is because it is bespeaking the lower net income generated in relation to the capital employed.
5.3 Liquid of Continental Limited
The current ratio of the company is higher than industry norm is 3.32: 1 and 2: 1which is much that the thought ratio of 2: 1, the current ratio is higher or equal to 2: 1, the larger sum of current assets can be used to finance current liabilities, bespeaking that company is financially stable and able to finance its short-run debts. Furthermore, the stock turnover period is higher than the industry norm is 117.36 years and 90 years. The higher stock turnover period indicates fast stock turnover in a concern where the goods and services purchased are kept in stock for a short clip and the fast stock for the short clip and so fast taken out from stock for resale. In add-on, the debtor aggregation period is higher than the industry norm is 64.6 years and 45 years. The higher of debitor aggregation period indicates that the company has given longer recognition clip to let debitor ‘s owing, causation, longer clip taken by the company to roll up money. While the creditor payment period is lower than the industry norm is 48.18 years and 60 years. The lower creditor payment period shows that the company has obtained a shorter recognition clip for having and paying creditors.
6.0 Conclusion and Recommendation
In the decision, making this rule of accounting assignment I have learned a batch of cognition about the rule of history. I already know the different types of accounting users and besides the features of the fiscal statement. Besides that, making this assignment besides has larn how to fix the income statement and balance sheet. The benefit I get from this assignment is learning to account will assist us to makes concerns or personal fiscal determinations. Another benefit is accounting cognition will assist us to understand the significance of the fiscal information.