Assignment 1st - 528 - Financial Accouting

Department of Business Administration
Block No. 13, Sector H-8, Allama Iqbal Open University, Islamabad.
Financial Accounting (528)

Assignment No. 02
Submitted to:
Mr. Attiqur Rehman
House No. A-64/4, Lane No. 02, Lalarukh, WAH CANTT (0300-513 5164)
Submitted by:
Muhammad Hammad Manzoor MBA (HRM) 1st Semester
Roll No. 508195394 508, 5th Floor, Continental Trade Centre (CTC) Block 08, Clifton, KARACHI (0321-584 2326, 0322-555 5901)
Financial Accouting (528) Q. No. 01 Write Shot notes on the following: a) Cost Principle b) c) Cash Flow Statement d) e) Shot Term Investment Answer: a) Cost Principle
Internal Control Retained Earning
The Cost Principle is the general concept that you should only record an asset, liability, or equity investment at its original acquisition cost. The principle is widely used to record transactions, partially because it is easiest to use the original purchase price as an objective and verifiable evidence of value. Explanation The obvious problem with the cost principle is that the historical cost of an asset, liability, or equity investment is simply what it was worth on the acquisition date; it may have changed significantly since that time. In fact, if a company were to sell its assets, the sale price might bear little relationship to the amounts recorded on its balance sheet. Thus, the cost principle yields results that may no longer be relevant, and so of all the accounting principles, it has been the most seriously in question. The cost principle is not applicable to financial investments, where accountants are required to record them at their fair values at the end of each reporting period. Using the cost principle for short-term assets and liabilities is the most justifiable, since an entity will not have possession of them long enough for their values to change markedly. The cost principle is less applicable to long-term assets and liabilities. Though depreciation, amortization, and impairment charges are used to bring them into approximate alignment with their fair values over time, the cost principle leaves little room to revalue these items upward. If a balance sheet is heavily weighted towards long-term assets, as is the case in a capital-intensive industry, then there is a greater risk that the balance sheet will not accurately reflect the actual values of the assets recorded on it. The cost principle implies that you should not revalue an asset, even if its value has clearly appreciated over time. This is not entirely the case under Generally Accepted Accounting Principles, which allows some adjustments to fair value. The cost principle is even less applicable under International Financial Reporting Standards,
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
Financial Accouting (528)

which not only permits revaluation to fair value, but also allows you to reverse an impairment charge if an asset subsequently appreciates in value. Under the cost principle, long-term assets are recorded at historical cost and depreciated as the items age or the company uses up the value of the asset. This usage is recorded as depreciation on the accounting ledgers; original long-term asset values are netted against the total depreciation to determine the assets salvage value. The cost principle uses an assets salvage value as the future market value of the item. When a company sells long-term assets, any monetary difference above or below the salvage value is recognized as a gain or loss on the companys accounting books. Balance sheet liabilities are recorded in a similar fashion using the cost principle. Short-term liabilities, such as accounts payable or credit lines, are recorded at historical cost since this represents the value of goods or services received by the company. Long-term investments or equity securities have traditionally been recorded at historical cost under the cost principle. Changes in accounting rules, mostly from the mark-to-market accounting principles, changed the way companies were recording certain financial investment instruments. Mark-to-market accounting requires companies to re-value the historical cost of financial securities to current market values. Re-valuing financial securities occurs at specific intervals during the accounting cycle; companies must write off or increase the value of these financial instruments. Mark-to-market accounting creates a significant change in the cost principle of accounting. Companies are now forced to recognize gains and losses prior to selling financial securities, changing the value or wealth stated on the companys balance sheet.
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Financial Accouting (528) b) Internal Control
In accounting and auditing, internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). There are many definitions of internal control, as it affects the various constituencies (stakeholders) of an organization in various ways and at different levels of aggregation. Under the COSO Internal Control-Integrated Framework, a widely-used framework in not only the United States but around the world, internal control is broadly defined as a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: a) Effectiveness and efficiency of operations; b) Reliability of financial reporting; and c) Compliance with laws and regulations. COSO defines internal control as having five components: 1. Control Environment-sets the tone for the organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control. 2. Risk Assessment-the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed 3. Information and Communication-systems or processes that support the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities 4. Control Activities-the policies and procedures that help ensure management directives are carried out. 5. Monitoring-processes used to assess the quality of internal control performance over time. The COSO definition relates to the aggregate control system of the organization, which is composed of many individual control procedures. Discrete control procedures, or controls are defined by the SEC as: "a specific set of policies, procedures, and activities designed to meet an objective. A control may exist within a designated function or activity in a process. A controls impact...may
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be entity-wide or specific to an account balance, class of transactions or application. Controls have unique characteristics for example, they can be: automated or manual; reconciliations; segregation of duties; review and approval authorizations; safeguarding and accountability of assets; preventing or detecting error or fraud. Controls within a process may consist of financial reporting controls and operational controls (that is, those designed to achieve operational objectives).
Internal control is the process designed to ensure reliable financial reporting,

effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control. Control environment. The management style and the expectations of upper-level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility. Control activities. Control activities are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. A short description of each of these control activities appears below.
Segregation of duties requires that different individuals be assigned responsibility for different elements of related activities, particularly those involving authorization, custody, or recordkeeping. For example, the same person who is responsible for an asset's recordkeeping should not be respon sible for physical control of that asset Having different indi viduals perform these functions creates a system of checks and balances. Proper authorization of transactions and activities helps ensure that all company activities adhere to established guide lines unless responsible managers authorize another course of action. For example, a fixed price list may serve as an official authorization of price for a large sales staff. In addition, there may be a control to allow a sales manager to authorize reason able deviations from the price list. Adequate documents and records provide evidence that financial statements are accurate. Controls designed to ensure adequate recordkeeping include the creation of invoices and other documents that are easy to use and sufficiently informa tive; the use of prenumbered, consecutive documents; and the timely preparation of documents.
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Physical control over assets and records helps protect the company's assets. These control activities may include elec tronic or mechanical controls (such as a safe, employee ID cards, fences, cash registers, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures.
c)
Cash Flow Statement
In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include:

Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses Potential lenders or creditors, who want a clear picture of a company's ability to repay Potential investors, who need to judge whether the company is financially sound Potential employees or contractors, who need to know whether the company will be able to afford compensation
Purpose of Cash Flow Statement The cash flow statement was previously known as the flow of Cash statement. The cash flow statement reflects a firm's liquidity. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating
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activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes. Structure of Cash Flow Statement The cash flow statement is intended to 1. provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances 2. provide additional information for evaluating changes in assets, liabilities and equity 3. improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods 4. indicate the amount, timing and probability of future cash flows The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
d)
Retained Earnings:
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet. The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:
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Also known as the "retention ratio" or "retained surplus".
Explanation Retained Earnings:

When a company generates a profit, management has one of two choices: They can either pay it out to shareholders as a cash dividend, or retain the earnings and reinvest them in the business.
When the executives decide that earnings should be retained, they have to account for them on the balance sheet under shareholder equity. This allows investors to see how much money has been put into the business over the years. Once you learn to read the income statement, you can use the retained earnings figure to make a decision on how wisely management is deploying and investing the shareholders' money. If you notice a company is plowing all of its earnings back into itself and isn't experiencing exceptionally high growth, you can be sure that the stock holders would be better served if the board of directors declared a dividend. Ultimately, the goal for any successful management is to create $1 in market value for every $1 of retained earnings. Retained Earnings Examples from Real Companies Let's look at an example of retained earnings on the balance sheet: Microsoft has retained $18.9 billion in earning over the years. It has over 2.5 times that amount in stockholder equity ($47.29 billion), no debt, and earned over 12.57% on its equity last year. Obviously, the company is using the shareholder's money very effectively. With a market cap of $314 billion, the software giant has done an amazing job.
Lear Corporation is a company that creates automotive interiors and electrical components for everyone from General Motors to BWM. As of 2001, the company had retained over $1 billion in earnings and had a negative tangible asset value of $1.67 billion dollars! It had a return on equity of 2.16%, which is less than a passbook savings account. The company is astronomically priced at 79.01 times earnings and has a market cap of $2.67 billion. In other words: Shareholders have reinvested a billion dollars of their money back into the
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company and what have they gotten? They owe $1.67 billion. 1 That is a bad investment. The Lear example deserves a closer look. It is immediately apparent that shareholders would have been better off had the company paid out its earnings as dividends. Unfortunately, the economics of the company are so bad had the profits been paid out, the business probably would have gone bankrupt. The earnings are reinvested at a sub par rate of return. An investor would earn more on the earnings by putting them in a CD or money market fund then by reinvesting them into the business.
E)
Short Term Investment:
A short term investment fund is a fund that earns you a return on your money in a short period of time, such as one to ten years. This is different than retirement investing, and it can be a challenge to find short team, high yield investments. Good short term investments will have a high interest rate, allowing you to earn substantial money immediately. The Need for Short Term Investments You might need short term investments if you have a pressing need coming up in the near future. If, for example, you might need to have a down payment for a house or car in a year or two, you could make use out of short term investment options. Also, you might use this type of fund in replacement of a traditional savings account, because you will earn a higher rate of return. Some even choose to use short term investment funds to supplement their retirement income. How to Use Short Term Investments If you are interested in short term investments, talk to your financial advisor. He or she can tell you what the best short term investment opportunity you can use will be. Then, invest your money, and leave it alone. Allow it to gain interest for the course of the investment period. When the fund comes to term, you will have earned interest on the money you invested. Decide what amount of your total income you are willing to invest in your fund. Most people are comfortable with investing around ten percent of their total income. Then, choose the investment to use. It is best to take the amount and invest it into one particular investment. Your long term investments are where diversification is helpful.
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Financial Accouting (528) Q. No. 02- A trial balance and supplementary information needed for adjustments at September 30 are shown for Cinemax stage & Theatre. The company follows a policy of adjusting and closing its accounts at the end of each month.
CINEMAX STAGE & THEATRE Trial Balance September 30, 1994 Cash Rs. 17,500 Prepaid film rental 65,000 Land 75,000 Building 210,000 Accumulated depreciation building Equipment 90,000 Accumulated depreciation equipment Notes payable Accounts payable Unearned admission revenue Capital Drawings 10,500 Admission revenue Salaries expenses 21,250 Light and power expense 7,750 Rs.497,000
Rs.6,125 7,500 200,000 8,500 5,200 200,925 68,750
Rs.497,000
a. b. c. d. e. f.
Other Data: Film rental expense for the month is Rs.42,275, all of which had been paid in advance. The building is being depreciated over a period of 10 years. The equipment is being depreciated over a period of 5 years. No entry has yet been made to record interest payable of Rs.1,800. No entry has yet been made to record the admission revenue earned during the month amounting to Rs.3,650. Salaries earned by the employees but not recorded Rs.3,750. Prepare Adjusting entries, Income Statement and Balance sheet for month ended September 30, 1994.
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Financial Accouting (528) Q. 3(a) Concord Products uses a perpetual inventory system. On January 1, the Inventory account had a balance of 84,500. During the first few days of January the following transactions occurred. Jan. 2 Purchased merchandise on credit from Smith Company for 9,200 Jan. 3 Sold merchandise for cash 22,000. The cost of this merchandise was 14,300. (a) Prepare entries in general from to record the above transactions. (b) What was the balance of the inventory account at the close of business January 31?
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Financial Accouting (528) Q. No. 3 (b) Distinguish perpetual inventory system from periodic inventory system. Answer.
There are a number of significant differences between the periodic and perpetual inventory systems. As you may recall, the periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps continual track of inventory balances. The key differences between the two systems are:
Accounts. Under the perpetual system, there are continual updates to either
the general ledger or inventory journal as inventory-related transactions occur. Conversely, under a periodic inventory system, there is no cost of goods sold account entry at all in an accounting period until such time as there is a physical count, which is then used to derive the cost of goods sold.
Computer systems. It is impossible to manually maintain the records for a

perpetual inventory system, since there may be thousands of transactions at the unit level in every accounting period. Conversely, the simplicity of a periodic inventory system allows for the use of manual record keeping for very small inventories.
Cost of goods sold. Under the perpetual system, there are continual
updates to the cost of goods sold account as each sale is made. Conversely, under the periodic inventory system, the cost of goods sold is calculated in a lump sum at the end of the reporting period, by adding total purchases to the beginning inventory and subtracting ending inventory.
Cycle counting. It is impossible to use cycle counting under a periodic

inventory system, since there is no way to obtain accurate inventory counts in real time (which are used as a baseline for cycle counts).
Purchases. Under the perpetual system, inventory purchases are recorded in
either the raw materials inventory account or merchandise account (depending on the nature of the purchase), while there is also a unit-count entry into the individual record that is kept for each inventory item. Conversely, under a periodic inventory system, all purchases are recorded into a purchases asset account, and there are no individual inventory records to which any unit-count information could be added.
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Transaction investigations. It is nearly impossible to track through the

accounting records under a periodic inventory system to determine why an inventory-related error of any kind occurred, since the information is aggregated at a very high level. Conversely, such investigations are much easier in a perpetual inventory system, where all transactions are available in detail at the individual unit level.
This list makes it clear that the perpetual inventory system is vastly superior to the periodic inventory system. The only case where a periodic system might make sense is when the amount of inventory is very small, and where you can visually review it without any particular need for more detailed inventory records. Tabulated below the major differences between Periodic Inventory System and Perpetual Inventory System:
Periodic Inventory System Inventory account and cost of goods sold are non-existent until the physical count at the end of the year.
Perpetual Inventory System
Account and the balance of costs of goods sold and inventory account exist all the time.
Purchases account is used to record purchases.
No individual purchases account but the purchases are recorded in the Inventory Account. No individual Purchase Returns account but the purchases return are recorded in the Inventory Account.
Purchase Return account is used to record Purchases Returns account.
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Periodic Inventory System
Perpetual Inventory System
Cost of goods sold or cost of sale is computed from the ending inventory figure
Record cost of goods sold/cost of sale inventory is reduced when there is a sale. Returns from customers are recorded by reducing the cost of goods sold and adding back into inventory.
For goods returned by customers there are no inventory entries.
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Financial Accouting (528) Q. No. 4 At November 30, one day cleaners have available the following data concerning its bank checking account: (a) (b) (c) (d) (e) At November 30, cash per the bank statement was Rs.37,758; per the accounting records, 42,500. The cash receipts of 6,244 on November 30, were deposited on December 1. Included on the bank statement was a credit for 167 interests earned on this checking account during November. Two checks were outstanding at November 30, No. 921 for Rs.964 and No. 925 for Rs.1,085. Enclosed with the bank statement were two debt memoranda for the following items: service charges for November, Rs.14; and a Rs.700 check of a customer Tanya Miller, marked NSF.
Instructions: Prepare the bank reconciliation at November 30? Prepare adjusting entries based on the bank reconciliation?
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Financial Accouting (528) Q. No. 5 How an accounting information system can be helpful for managers? Answer:
An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors and regulatory and tax agencies. In particular, specially trained accountants work with AIS to ensure the highest level of accuracy in a company's financial transactions and recordkeeping and to make financial data easily available to those who legitimately need access to it, all while keeping data intact and secure. This article will describe the primary components of AIS and some of its real-life applications. Components of an Accounting Information System Accounting information systems generally consist of six main parts: people, procedures and instructions, data, software, information technology infrastructure and internal controls. Let's look at each component in detail.
People The people in an AIS are simply the system users. Professionals who may need to use an organization's AIS include accountants, consultants, business analysts, managers, chief financial officers and auditors. (Learn more in What does a chief financial officer Do?) An AIS helps the different departments within a company work together. For example, management can establish sales goals for which staff can then order the appropriate amount of inventory. The inventory order notifies the accounting department of a new payable. When sales are made, sales people can enter customer orders, accounting can invoice customers, the warehouse can assemble the order, the shipping department can send it off, and the accounting department gets notified of a new receivable. The customer service department can then track customer shipments and the system can create sales reports for management. Managers can also see inventory costs, shipping costs, manufacturing costs and so on. The AIS should be designed to meet the needs of the people who will be using it. The system should also be easy to use and should improve, not hinder, efficiency.
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Procedure and Instructions The procedure and instructions of an AIS are the methods it uses for collecting, storing, retrieving and processing data. These methods will be both manual and automated, and the data can come from both internal sources (e.g., employees) and external sources (e.g., customers' online orders). Procedures and instructions will be coded into AIS software; they should also be "coded" into employees through documentation and training. Procedures and instructions must be followed consistently to be effective. To store information, an AIS must have a database structure such as structured query language (SQL), a computer language commonly used for databases. The AIS will also need various input screens for the different types of system users and different types of data entry, as well as different output formats to meet the needs of different users and different types of information. Data The data contained in an AIS is all the financial information pertinent to the organization's business practices. Any business data that impacts the company's finances should go into an AIS. The data included in an AIS will depend on the nature of the business, but it may consist of the following:

sales orders customer billing statements sales analysis reports purchase requisitions vendor invoices check registers general ledger inventory data payroll information timekeeping tax information
This data can then be used to prepare accounting statements and reports such as accounts receivable aging, depreciation/amortization schedules, trial balance, profit and loss, and so on. Having all this data in one place - in the AIS - facilitates a business's recordkeeping, reporting, analysis, auditing and decision-making activities. For the data to be useful, it must be complete, correct and relevant. Software The software component of an AIS is the computer programs used to store, retrieve, process and analyze the company's financial data. Before there were computers, AISs were manual, paper-based systems, but today, most companies are using computer software as the basis of the AIS. Small businesses might use Intuit's Quickbooks, Sage Peachtree Accounting, or Microsoft's Small Business Accounting but there are many others. Small to mid-sized businesses might use SAP's Business One. Mid-sized and
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large businesses might use Microsoft's Dynamics GP, Sage Group's MAS 90 or MAS 200, Oracle's Peoplesoft or Epicor Financial Management. Quality, reliability and security are key components of effective AIS software. Managers rely on the information it outputs to make decisions for the company, and they need high-quality information to make sound decisions. Information Technology Infrastructure Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information system. Most of these hardware items are things a business would need to have anyway - they include personal computers, servers, printers, surge protectors, routers, storage media, and possibly a backup power supply. In addition to cost, factors to consider in selecting hardware include speed, storage capability and whether it can be expanded and upgraded. A good AIS should also include a plan for maintaining, servicing, replacing and upgrading components of the hardware system, as well as a plan for the disposal of broken and outdated hardware so that sensitive data is completely destroyed. Internal Controls The internal controls of an AIS are the security measures it contains to protect sensitive data. These can be as simple as passwords or as complex as biometric identification. An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users which includes some users inside the company. It must also prevent unauthorized file access by individuals who are allowed to access only select parts of the system. (For more on personal safety, check out Protecting Your Financial Documents From Disaster) An AIS contains confidential information belonging not just to the company but also to its employees and customers. This data may include Social Security numbers, salary information, credit card numbers, and so on. All of the data in an AIS should be encrypted, and access to the system should be logged and surveilled. System activity should be traceable as well. An AIS also needs internal controls that protect it from computer viruses, hackers and other internal and external threats to network security . Furthermore, it must be protected from natural disasters and power surges that can cause data loss. (Learn how you can get a job in this field, read A Guide To Careers In Accounting Information Systems)
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How Accounting Information System can be helpful for Managers? The Accounting Information System can be helpful for managers in the following ways; 1. 2. 3. 4. 5. 6. 7. 8. Define accountings, identify business goals and activities, and describe the role of accounting in making informed decisions. Identify the many users of accounting information in society. Explain the importance of business transactions, money measure, and separate entity to accounting measurement. Describe the corporate form of business organization. Define financial position, state the accounting equation, and show how they are affected by simple transactions. Identify the four financial statements. State the relationship of generally accepted accounting principles (GAAP) to financial statements and the independent CPAs report, and identify the organizations that influence GAAP. Define ethics and describe the ethical responsibilities of accountants.
Define accountings, identify business goals and activities, and describe the role of accounting in making informed decisions.
Accounting provides a vital service by supplying the information decision makers need to make reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities. Accounting is a link between business activities and decision makers. Accounting measures business activities by recording data about them for future use. The data are stored until needed and then processed to become useful information.
1. Profitability. A business must take in enough money to pay all the costs of doing business, with enough left over as profit for the owners to want to stay in business. 2. Liquidity. A business must have enough cash
available to pay debts when they are due.
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Identify the many users of accounting information in society. Requires financial information to carry out its basic functions. 1. Financing the business. 2. Investing the resources of the business. 3. Producing goods and services. 4. Marketing goods and services. 5. Managing employees. 6. Providing information to decision makers.
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Explain the importance of business transactions, money measure, and separate entity to accounting measurement.
Business transactions as the object of measurement. Business transactions are economic events that effect the financial position of a business entity. o Transactions are the raw material of accounting reports. o Transactions must relate directly to a business entity. Money Measure. o Money is the only factor common to all business transactions. o The monetary unit a business uses depends on the country in which the business resides. o Exchange rates translate one currency to another. The Concept of Separate Entity. o A business is a separate entity, distinct from its creditors and customers and from its owner or owners.
Describe the corporate form of business organization. Sole Proprietorship. Partnership. Corporation. Formation of a Corporation. Organization of a Corporation. o Stockholders. o Board of Directors. o Management.
Define financial position, state the accounting equation, and show how they are affected by simple transactions. Assets are economic resources owned by a business that are expected to benefit future operations. o Monetary items. o Nonmonetary physical things. Liabilities are the present obligations of a business to pay cash, transfer assets, or provide services to other entities in the future. Owners equity represents the claims by the owners of a business to the assets of the business.
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Owners equity is the residual equity that remains after deducting liabilities from assets. OE = Assets - Liabilities. Assets = Liabilities + SE. SE = Contributed Capital + Retained Earnings.
Identify the four financial statements Financial statements are the primary means of communicating important accounting information to users. Financial statements represent models of the business enterprise because they show the business in financial terms. Financial statements are not perfect pictures of the real thing. Summarizes revenues earned expenses incurred over a period of time. Is considered by many to be the most important financial report because it shows whether or not a business achieved its profitability goal of earning an acceptable income. Shows the changes in retained earnings over a period of time.
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References:
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http://www.accountingtools.com/cost-principle http://www.wisegeek.com/what-is-cost-principle.htm http://en.wikipedia.org/wiki/Internal_control http://www.cliffsnotes.com/study_guide/Internal-Control.topicArticleId 21081,articleId-21006.html http://en.wikipedia.org/wiki/Cash_flow_statement http://www.investopedia.com/articles/04/033104.asp#axzz1bgHCriaQ http://www.investopedia.com/terms/r/retainedearnings.asp#axzz1bgHCriaQ http://beginnersinvest.about.com/od/analyzingabalancesheet/a/retainedearnings.htm http://www.ilikeinvesting.com/general-investment-articles/short-terminvestments.php http://www.accountingtools.com/questions-and-answers/what-is-thedifference between-the-periodic-and-perpetual-in.html http://basiccollegeaccounting.com/the-difference-between-periodicinventory-systemand-perpetual-inventory-system/ http://www.investopedia.com/articles/professionaleducation/11/accounting information-systems.asp#axzz1bgHCriaQ
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Mr. Attiq ur Rehman H. No. A-64/4, Lane No.02, Lalarukh WAH CANTT. (0300-513 5164)
M. Hammad Manzoor 508195394 # 508, 5th Floor, CTC Continental Trade Centre, Block-08 08, KARACHI. (0321Clifton 584 2326) Financial Accounting 01 528
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Department of Business Administration

Financial Accounting (528)

Internal Control Retained Earning

Financial Accouting (528)

Financial Accouting (528) b) Internal Control

Financial Accouting (528)

Internal control is the process designed to ensure reliable financial reporting,

Financial Accouting (528)

Cash Flow Statement

Financial Accouting (528)

Financial Accouting (528)

Explanation Retained Earnings:

Financial Accouting (528)

Short Term Investment:

Rs.6,125 7,500 200,000 8,500 5,200 200,925 68,750

Computer systems. It is impossible to manually maintain the records for a

Cycle counting. It is impossible to use cycle counting under a periodic

Purchases. Under the perpetual system, inventory purchases are recorded in

Financial Accouting (528)

Transaction investigations. It is nearly impossible to track through the

Perpetual Inventory System

Purchases account is used to record purchases.

Purchase Return account is used to record Purchases Returns account.

Financial Accouting (528)

Periodic Inventory System

Perpetual Inventory System

For goods returned by customers there are no inventory entries.

Financial Accouting (528)

Financial Accouting (528)

Financial Accouting (528)

available to pay debts when they are due.

Financial Accouting (528)

Financial Accouting (528)

Financial Accouting (528)

Financial Accouting (528)

Financial Accouting (528)

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