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会计原则是服务活动,它关心的是收集、分析和记录金融交易的业务。会计可以明智的决策,相当于一种财务智能。除此之外,根据美国会计学会提到“的过程识别、计量和沟通经济信息,允许用户明智的判断和决策的信息!”然而,会计信息应该是有用的任何希望对商业决策和计划,它包括控制和管理它们。 这一原则的会计作业,它包含4个任务。在任务1中,定义五个不同账户用户,他们需要有限的财务报表。除此之外,它还定义了五个监管这些财务报表的特点,将向用户提供有用的信息。 Principle of Accounting is a service activity and it concerned with collecting, analysing and record the financial transactions of the business. Accounting can informed decision and make financially smart. Besides that, according to American Accounting Association mention that “the process of identifying, measuring and communicating economic information to permit informed judgments and decision by user of the information!” However, accounting information should be useful to anyone wishing to make decisions and plan about business, it including those who control and manage them. In this Principle of Accounting assignment, it contains 4 tasks. In task 1, it is define the five different account users and their need for Continental Limited financial statements. Besides that, it also defines the five regulatory characteristics of these financial statements that will provide useful information to the users. In task 2, the author need find out all the data and use the trial balance to calculate the income statement and balance sheet of Continental Limited for year ending 31 Dec 2010. However, in task 3 is to prepare the income statement and balance sheet of Continental Limited for year ending 31 Dec 2010 in the accepted format for external reporting or publication. At last, in task 4, it need use the task 2 and 3 income statement and balance sheet to calculate the appropriate accounting ratios for year ending 31 Dec 2010 and compare them with the industry averages provided to assess the profitability and liquidity of Continental Limited. Accounting information is helps the users to make better financial decision. Besides that, in accounting user, it define into two categories, one is the internal users while another is external users. The internal user is mean that the people within the organization and it usually in the form of budgets, financial statement and management account. In the other side, the external users is means that the people outside the organization and it usually in the form of financial statement. All this is use account to derive financial information for their needs. The five different users and their need for the Continental limited financial statement is manager of the company, employees of the company, investors, suppliers or creditors and customers or debtors. Besides that, in these five different users, it has 2 type of user. One is external users while another is internal users. In these five different users, manager of the company and the employees of the company are classifying at internal users while supplier or creditors, customers or debtors and investors are classify at external users. So, the author will describe these five different users and their need for Continental Limited financial statement. First, managers of the company is analyzes the feasibility of their investment and they need accounting information about the company’s financial situation and determine any future course to enable them to manage the business efficiently. However, it also to help them to make decision and plans for the business and to help them to exercise control to try to ensure that plans come to fruition. Besides that, employee of the company is the people employed by the company to carry out the business activities. They need accounting information about stability of the company because their future careers and salary are depending on it. Normally, investor is for analyzing the possibility of investing in that company. This means that they need accounting information to know whether it is worth for them to invest their money in the business or buying shares of the Continental Limited. However, customers or debtors are purchase goods or services provided by the company. They may be dependent on the business for certain product or service. They also need accounting information about the company financial stability to survive and prosper. The last user is suppliers or creditors. They are provided trading goods and services to the company on credit. Suppliers and creditors need accounting information that help them understand the company’s ability to pay its debts and assess the short-term liquidity of the business. It has five regulatory characteristics of these financial statements that will provide useful information to the users. The five regulatory characteristics are relevance, understandability, accuracy, reliability and comparability. These are the characteristics of useful financial statement. Besides that, these criteria must be fulfilled to make the financial statement and account that are useful to the users. So, the author will define all these five regulatory characteristics. First, relevance is the financial account prepare base on the accounting concept and it should impact to the decision making need of the users that peruses the information. However, to be relevant, information be suppose available in time and help in predict. Therefore, the information presented by the financial accounts should be relevant to the decision making of the users. The next characteristics is understandability, it is refer to the quality of the financial information which make it understood by the users who have reasonable knowledge of business, accounting and economic activities. Besides that, understandability is requires the information presented in financial report to be clear and complete. Accuracy is one of the characteristic that provide accurate financial information to the users for decision making. This is because, the inaccurate financial information will lead to inaccurate decision make by the users. However, the other characteristic of this financial statement is reliability; it is present reliable information to the users for decision making. The information is reliable if it is free from error and faithfully represents what it seeks to represent. Besides that, it is complete of required account information and realistic where there any uncertainty. Therefore, if all this stated points are not fulfilled, the financial account information is not reliable for the decision making of the user. The last characteristic of this financial statement is comparability; it is base on the accounting concepts should be comparable with the previous year account and comparable with the account of the other company and it is very important. In this task, the author needs to find out all the data and collect it to calculate the income statement and balance sheet of Continental Limited. So, the author need to the following workings before preparing income statement and balance sheet. This income statement and balance sheet is prepared for internal use. Income statement generally contains information about profits, operating cost and net income as that information has been gathered for a stated period of time. Net income occurs when profits exceed operating cost. A net loss happens when operating cost exceed profits. In addition, balance sheet is a statement of a company financial condition. Besides tha, this income statement and balance sheet is prepared for external reporting. Accounting ratios are the expressed and counted based on accounting figures derived from financial statements or final accounts of firm. Accounting ratios are used to interpret financial statements for assessing the business performance of the firm. Besides that, accounting ratio can be compared between companies, industries, different time periods for a company and a particular company and its industry average. The Percentage of Gross Profit on Sales for the Continental Limited is 49.58% higher than the industry averages that is 30%. The higher gross profit on sales indicates the higher gross profit earned by the Continental Limited from the sales made. It shows that the Continental Limited is effective and efficient in controlling the purchase cost by making the purchase at lower cost from supplier and it is in controlling the production cost by the effective use of material and labor to reduce the production cost as well as to increase the gross profit. Besides that, the Percentage of Operating Profit on Sales for the Continental Limited is 20.99% higher than the industry averages that is 18%. The higher Operating profit on sales indicate higher net profit earned by the Continental Limited from the sales made for effective control on expenditure, incurring lower expenses to increase the net profit earning, evidenced by lower expenses to sales ratio. However, the Return on Capital Employed (ROCE) for the Continental Limited is 11.26% higher than the industry averages that is 9%. The higher return on capital employed indicates higher net profit generated from the capital employed for the effective use of capital employed in production selling activities to increase the production and sales volume as well as to increase the net profit earning. The Current Ratio for the Continental Limited is 3.32:1 higher than the industry averages is 2:1. It is larger current assets can be used to finance current liabilities, indicating that the Continental Limited is financially stable and able to finance its short-term debts. The Stock Turnover Period for the Continental Limited is 117.36 days higher than the industry average is 90 days. The higher stock turnover period indicate a fast stock turnover by the Continental Limited where the goods purchased are fast taken out from stock to sell so that the stock is not accumulated and money is not tied up with the stock. Besides that, the Debtors Collection for the Continental Limited is 64.6 days higher than the industry averages is 45 days. The higher debtor’s collection period indicate that Continental Limited has given longer credit time to allow debtor owes, and it will cause longer time taken by Continental Limited to collect money slowly from debtors so that larger debtor balance is accumulated to tie up money and facing short-term financial problem. In addition, The Creditors Payment Period for the Continental Limited is 48.18 days lower than the industry averages is 60 days. The lower the creditor’s payment period indicate that Continental Limited has obtained shorter credit time for owing and paying to creditors so that Continental Limited needs to pay back the creditor very fast, and it will cause smaller creditor balance accumulated and short-term financial problem for shortage of money to pay back creditor. When doing this assignment, I can learn how to prepare the income statement and the balance sheet. Besides that, I know the five different users and the five regulatory characteristics. However, I know how to calculate the appropriate ratios and compare them with the industry averages provided to assess the profitability and liquidity of Continental Limited. So, in my conclusion, accounting is a service activity and it is very important for all business. This is because, it concerned with collecting, analysing and record the financial transactions of the business. |
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