Examples of assets reported at net realizable value, or fair value, include accounts receivable and investments. The Going-Concern Assumption The going-concern assumption indicates that we assume that a business will be a continuing enterprise which will operate for an indefinite period.
This assumption supports the principle of historical cost as most long-term assets are not intended for resale but meant to assist the business in continuing their core operations. The Objectivity Principle Objective describes information that is factual, definite, and verifiable. Objective information lacks subjectivity. Objectivity is a primary reason for reporting long-term assets at historical cost as that value is verifiable. Your Turn:You as a Home Owner First, assume you have owned your home for 10 years and need to report the value of your home to the city assessor for real estate tax assessment purposes.
What information would you provide? Second, assume you are planning to sell your home. What type of information would you provide to potential buyers? What ethical issues arise in these two situations that the objectivity principle helps address?
The Stable-Dollar Assumption A limitation of measuring assets at historical cost is that the value of the monetary unit or dollar is not always stable. Inflation is a term used to describe the situation where the value of the monetary unit decreases, meaning that it will purchase less than it did previously. Deflation, on the other hand, is the opposite situation in which the value of the monetary unit increases, meaning that it will purchase more than it did previously.
The Stable-Dollar Assumption cont. Accountants in the United States prepare financial statements under an assumption that the dollar is a stable unit of measurement, as is the gallon, the acre, or the mile. International Case in Point Many countries experience prolonged and serious inflation. Inflation can undermine the stable-currency assumption.
For example, Mexican corporate law requires Mexican companies to adjust their balance sheets to current purchasing power by using indexes provided by the government. Liabilities Liabilities: Financial obligations or debts. Represent negative future cash flows. The person or organization to whom the debt is owed is called a creditor.
Usually listed on the balance sheet in the order in which they are expected to be repaid. Indicates a residual amount as creditors have legal priority over owners.
Entitles owners to the residual assets once creditors have been paid in full. Always equal to total assets minus total liabilities. Investments of cash or other assets by owners. Earnings from profitable operation of the business. Payments of cash or transfers of other assets to owners. Losses from unprofitable operation of the business. The Effects of Business Transactions How does a statement of financial position come about?
What has occurred in the past for it to exist at any point in time? Illustration: Introduction To illustrate how a balance sheet comes about, and later to show how the income statement and statement of cash flows relate to the balance sheet, we use an example of a small auto repair business, Overnight Auto Service. This strategy offers customers the convenience of dropping off their cars in the evening and picking them up the following morning.
Operating at night also enables Overnight to minimize labor costs. Instead of hiring full-time employees, Overnight offers part-time work to mechanics who already have day jobs at major automobile dealerships. He knows that small businesses such as his are not required to prepare formal financial statements, but he prepares them anyway.
He believes they will be useful to him in running the business. In addition, if Overnight is successful, McBryan plans to open more locations. He anticipates needing to raise substantial amounts of capital from investors and creditors. He believes that the financial history provided by a series of monthly financial statements will be helpful in obtaining investment capital. Overnight:Transaction 5 Overnight realized that the company had purchased more tools and equipment than it needed.
Ace agreed to pay the amount within 45 days. Overnight: Expanded Accounting Equation Overnight: Expanded Accounting Equation cont. These transactions impact the Statement of Cash Flows. These transactions impact the Income Statement. Result in positive cash flows.
Income Statement cont. Result in negative cash flows. Net income is the difference between revenues and expenses for a specified period of time. Statement of Cash Flows Classifies cash flows into three categories: 1. Operating activities: the cash effects of revenue and expense transactions that are included on the income statement.
Investing activities: the cash effects of purchasing and selling assets, such as land and buildings. Financing activities: the cash effects of the owners investing in the company and creditors loaning money to the company and the repayment of either or both. Case in Point: Statement of Cash Flows It is not unusual for a company to report an increase in cash from operating activities, but a decrease in the total amount of cash.
This outcome results when more cash is used for investing and financing activities than is generated from operations. In addition, Carnival used a large amount of cash to reduce its debt, and made a substantial dividend payment.
These balances will appear on the Balance Sheet. Overnight: Balance Sheet cont. Relationships Among Financial Statements Date at beginning of period Time Date at end of period Statement of financial position Balance sheet Statement of financial position Balance sheet Income statement Statement of cash flows Overnight wants to buy goods from your company on credit.
What factors might you consider in deciding whether to extend credit to Overnight? Forms of Business Organization 1. Sole Proprietorship a. An unincorporated business owned by one person. Often the owner also acts as the manager. Common for small retail stores, farms, service businesses, and professional practices in law, medicine, and accounting. Most common form of business organization in our economy. Forms of Business: Partnership 2.
Partnership a. An unincorporated business owned by two or more persons voluntarily acting as partners co- owners. Widely used for small businesses as well as some large professional practices, including CPA firms and law firms. Owners of a partnership are personally responsible for all debts of the business. From an accounting standpoint, a partnership is viewed as a business entity separate from the personal affairs of its owners. Download buku service manual honda beat by.
The Honda Vezel will continue with the same powertrains as current model. In this aspect there are main differences between this and export HR-V model. It will be available both in petrol and hybrid variants. Marshall Plumbing is here for all your plumbing needs, no job is to small or to big.
Skip to content. By amia September 6, Everett 3 Comments on Accounting the basis for business decisions solution manual pdf. Accounting test banks and solution manuals. Search WorldCat Find items in libraries near you. Advanced Search Find a Library. Format All Formats 10 Print book Refine Your Search Year. Displaying Editions 1 - 10 out of Your list has reached the maximum number of items.
Please create a new list with a new name; move some items to a new or existing list; or delete some items. A trend of relatively high income numbers over several accounting periods signals a particularly strong income situation. A strong statement of cash flows is one that shows significant amounts of cash generated from operating activities. This means that the enterprise is generating cash from its ongoing activities and is not required to rely heavily on debt and equity financing, or on the sale of its major assets, to finance its daily operations.
A trend of relatively high cash flows provided by operations numbers over several accounting periods signals a particularly strong cash flow situation. The accounting equation stays in balance because the amount of net income is reflected in changes in the balances of various assets and liabilities that are also presented in the balance sheet.
Assets are economic resources owned by the business entity. Among the assets of American Airlines we might expect to find investments, accounts receivable say, from travel agents , fuel in storage , maintenance supplies, aircraft, and various types of equipment. The company also owns land and buildings—as, for example, its corporate headquarters. Among the assets of a professional sports team are investments in stocks and bonds , notes receivable often from players , training equipment, supplies, and office furniture.
The balance sheet of a professional sports team may not include land or buildings, as they generally do not own the stadiums in which they play. Player contracts only appear as an asset if they have a cost—that is, if they were purchased from other teams. Advance payments to players usually are shown as prepaid expenses. We address intangible assets in Chapter 9, but the concept is consistent with the discussion of assets in Chapter 2. Liabilities are existing debts and other obligations of the entity.
Among the liabilities of American Airlines, we might expect to find accounts payable, notes payable or mortgages or bonds payable stemming from purchases of aircraft, salaries payable, interest payable, rent payable for space in airports , and income taxes payable. The balance sheet of a professional sports team might include accounts payable, rent payable for the stadium , salaries payable, interest payable, and income taxes payable.
Note to instructor: In a classroom discussion, you might want to point out that both an airline and a professional sports team may have liabilities for unearned revenue. A sports team has a similar obligation with respect to advance sales of tickets, particularly season tickets. Notes payable ……………………. Capital stock……………………..
Retained earnings……………….. Presenting the supplies at their estimated liquidation value violates the assumption that World-Wide is a going concern, and will use these supplies in normal business operations, rather than sell them on the open market. This treatment illustrates both the cost principle and the stable-dollar assumption. Several issues must be considered in deciding whether or not disclosure of the burglary loss is necessary.
For example, was the asset insured? Note to instructor: These are examples, but many others exist. The purchase of office equipment or any other asset on credit will cause an increase in the asset office equipment and an increase in a liability. The cash payment of an account payable or note payable will cause a decrease in the asset cash and a decrease in the liability paid.
The collection of an account receivable will cause an increase in one asset cash and a decrease in another asset accounts receivable. Other examples include the purchase of land for cash, and the sale of land for cash. The purchase of an automobile or other asset paying part of the cost in cash and promising to pay the remainder at a later time would cause an increase in one asset automobile , a decrease in another asset cash , and an increase in a liability by the amount of the unpaid portion.
If the company is not incorporated, the owner or owners are personally liable for the debts of the business organization. On the other hand, if Spencer is organized as a corporation, a lender may look only to the corporate entity for payment. Note to instructor: You may wish to point out that some lenders would not make sizable loans to a small corporation unless one or more of the stockholders personally guaranteed the loan.
This is accomplished by having the stockholder s cosign the note. Cash is the most liquid of all assets. In fact, companies must use cash in paying most bills. Accounts payable is a liability that requires payment, usually in the near future and usually by paying cash. Thus, existing accounts payable detract from liquidity. Accounts receivable are assets that will shortly convert into cash as payments are received from customers. It represents amounts originally invested in the business by the owners, but says nothing about the form in which the company now holds these resources—nor even whether the resources are still on hand.
Thus, the capital stock account has no direct effect upon liquidity. The situations encountered in the practice of accounting and auditing are too complex and too varied for all specific answers to be set forth in a body of official rules.
Therefore, individual accountants must resolve many situations based upon their general knowledge of accounting, their experience, and their ethical standards—in short, their professional judgment. Cash flows from investing activities: Cash paid for equipment ……………………………………………….
The cash received from bank loans is a positive cash flow—financing activity—in the statement of cash flows, but is not included in the income statement. Dividends paid to stockholders are a negative cash flow—financing activity—in the statement of cash flows, but are not included in the income statement. Note to instructor: Many examples of steps to improve the financial statements could be cited. The ones listed below are those that the authors believe are most likely to be identified by students.
Steps to Window Dress. The trend is variable. Despite this somewhat negative trend in the percentage of net income to revenue, the absolute dollar amounts of net income are quite large, and the most current year is a significant improvment over Revenues have grown steadily over the period, which is a positive sign.
It declines in , then returns in to almost the same percentage as in The balance sheet indicates that Rocky Mountain Lodge is in a weak financial position. Note to instructor: Students were asked to base their answers to part b on the balance sheet alone. Students may correctly point out that a balance sheet does not indicate the rate at which cash flows into a business.
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