Accounting and Finance Assignment
Task 1
Galileo’s saying “Measure what is measurable, and make measurable what is not so” may be interpreted with reference to the accounting. Accounting and financial analysis help to find a numerical expression of such complex concepts as measuring the success and profitability of the company. Accounting for intangible assets is a good example of how accountants manage to measure something that seems to be not measurable such as goodwill. Though, there are generally accepted accounting principles to measure such asset as goodwill, there exist a great variety of concepts that seem to be not measurable but are accounted and measured. The accountants and managers have to manage the following concepts: the risk of bankruptcy, forecasted revenues of new product, quality, and management effectiveness. Each of these examples can very well be relevant to some major decision an organization must make. Yet in many companies, because these specific intangible concepts were assumed to be immeasurable, the decisions were not nearly as informed as they could have been. Accountants in their everyday work use various economic and statistical methods such as ratio analysis, regression analysis, and many others to measure such intangibles.
Task 2
Excel helps managers to store and analyze data. It has various features that help to make predictions and forecasts based on the analysis.
Basic accounting principles are the following:
Time-period principle. The company reports it financial results within a fiscal year.
Monetary unit assumption. All transactions are measured in US dollars.
Full disclosure principle. The company includes either in the financial statement or in the footnotes all the information that may impact a reader’s understanding of those financial statements.
Matching principle. When a company record revenues, it also records related expenses.
Reliability principle. Company records only proven transactions.
Task 3
A.
Transaction #
Account
Type
Increase/Decrease
Debit/Credit
Amount
1a
Sales Revenue
Revenue
Increase
Credit
1662
1b
Accounts Receivable
Assets
Increase
Debit
675
Cash
Assets
Increase
Debit
987
1c
Cost of goods sold
Expenses
Increase
Debit
779
Merchandise Inventory
Assets
Decrease
Credit
779
2
Merchandise Inventory
Assets
Increase
Debit
543
Accounts Payable
Liabilities
Increase
Credit
543
3
Cash
Assets
Increase
Debit
400
Accounts Receivable
Assets
Decrease
Credit
400
4
Prepaid Expenses
Expenses
Increase
Debit
230
Cash
Assets
Decrease
Credit
230
5
Accounts Payable
Liabilities
Decrease
Debit
450
Cash
Assets
Decrease
Credit
450
6
Selling and Administrative Expenses
Expenses
Increase
Debit
453
Cash
Assets
Decrease
Credit
453
7
Prepaid Rent
Assets
Increase
Debit
80
Prepaid Expenses
Expenses
Decrease
Credit
80
8
Depreciation Expense
Expenses
Increase
Debit
160
Accumulated Deprecation
Increase
Credit
160
B.
Figure 1. Income Statement
Figure 2. Balance sheet
C. The balance sheet shows the imbalance of assets and liabilities since the assets (Cash and cash equivalents) have been reduced and liabilities were not changed.
Task 4
Depreciation is a systematic expensing of the costs of assets (such as buildings, equipment, etc.) over its useful life ("Depreciation, Depletion and Amortization – DD&A", 2016). The systematic expensing of the cost of natural resources is known as depletion. Amortization is a systematic expensing of other long-term costs, for example costs associated with bonds ("Are depreciation, depletion and amortization similar? | AccountingCoach", 2016). Impairment is an accounting principle that describes a permanent reduction in the value of a company's asset, normally a fixed asset ("Impairment", 2016).
LIFO method is prohibited by International Financial Standards because it may create a distortion to net income when prices are rising ("Problems with Applying LIFO", 2016). LIFO creates higher costs of goods sold, which provides an opportunity to decrease firm’s tax liabilities.
Task 5
Figure 3. Income Statement Hillary Ltd
Figure 4. Balance Sheet Hillary Ltd
Task 6
Three ethical issues related to ABC Learning collapse are conflict of interest, conflicting financial statements (ABC Learning relied on government subsidies declaring it …
