Professional Documents
Culture Documents
Financial Statements
Today, I will be describing a balance sheet, income statement, retained
earnings statement, and statement of cash flows and how a company
uses these financial statements as a tool to make future decisions for the
company.
Balance Sheet
A balance sheet a statement sheet that reports the companys financial
balances of the business. This sheet includes the companys total of
assets and liabilities. It is used for all three types of business sole
proprietorship, business partnership and corporate business companys.
Creditors rely on this financial sheet to determine if the company will be
able to repay.
Income Statement
An Income Statement is a financial statement that shows the companys
profit and losses. It basically shows all the companys gains and losses
that were made during a period of time. After the company deducts the
expenses from the revenue then you will get a total net income. This is a
great statement to use especially because this will show investors how
much net income is the company bringing in, or how financially stable the
company truly is.
Retained Earnings Statements
Retained Earnings Statements reports the changes to the retained
earnings (net income in a corporation) during a certain time period. This
financial statement shows dividends, profits and loses. Investors and
Lenders monitor the retained Earning Statements especially when it
comes to monitoring dividends. Some invest use this tool to see if the
company is paying high/low dividends. Retained Earnings Statement is
part of the balance sheet under Stockholders equity.
All four of these financial statements are all extremely important tools to
use in the business. Another statement that was not listed but is often
used is called comparative statements. Comparative statement gives a
side by side comparison of the financial statements above.
Reference
Another response
The main objective of generating financial information
is providing useful information that can be used in
decision-making... only if this information is relevant,
reliable, comparable, and consistent, can it be useful
for decision makers. (Kieso, 2003).
Relevance gives a basis for making decisions that will
impact the future of a business, and it confirms and
corrects expectations from the past. If the information
makes a difference in making decisions, it is relevant.
Reliability means that the information can be depended
on and it can be proven to be free of error, and the
information is factual. The information cannot favor
one set of users over another. CPAs audit financial
statements to ensure reliability.
Comparability is also an important characteristic of
financial reporting... this happens when different
businesses use similar accounting principles, making it
much easier for one to compare companies, and the
method used in a business must be disclosed to the
users of the information to enable the users to convert
the information as accurately as possible.
Consistency simply means that the business uses the
same accounting principles on a yearly basis...
consistently. This helps decision makers analyze a
company's trends. A company can change the
methods used if they can justify the change, showing
that the new method is more useful for analysis. If the
method is changed, it must be disclosed in the notes
that go with the statements to show users a lack of
consistency.
These characteristics are very important to a
business... decisions cannot be made based on
incorrect information, and everyone involved in a
business venture of any kind, whether they be
management, owners, or investors and creditors, as
well as consumers, etc. must be able to rely on the
financial information provided in order to make any
type of decision. Without this information, it is difficult
to imagine any business succeeding, even for a short
time.
Examples of problems that could occur without reliable,
relevant, consistent, or comparable information
includes not being able to get loans or investments;
management could make decisions that cause
irreparable damage to entire operations, consumers
could easily lose faith and cut their ties... the
possibilities are endless for companies that lack these
qualities in their financial reporting.
DQ2
For Discussion Question 2: Post your response to
the following:
How does information from financial reports
influence business decisions?
Why is it important for business managers to
understand the information found on financial reports?
Another response
The information from financial reports influences
business decisions because it shows where the
company stands. The managers use the information
from the financial report compared to the current year
from the previous year, whether the company growths
or losses. It is very important for business managers to
understand the information found on financial reports
because the information from the financial reports
enables business managers to see how to improve and
keep the business afloat. It also gives business
managers an insight what came in and went out and
the total operating cost of the company as well as
cutting cost in a certain areas. The information from
the financial reports helps the manager manages the
business accurately.
--------------------------------------------
Rob, Sue, and Bob all use one register has often turned
into not the best decision ideally for the company. It
can increase the risk for the drawer being short and it
will be hard for the company to find out which
employee or employees had shorted the register. The
internal controls that are not being followed are
Establishment of responsibility. Happens when the
company assigns one person to be in control of a
specific job or have authority to make decisions (pg
161 Internal Control and Cash). When the company
signs one person to be responsible over the register it
will allow the company to hold that one person
responsible for any shortages.
Sam does the ordering of materials at the
beginning of every month and pays the bill.
In this case Sam is ordering materials and paying all
the bills. This process is actually known as related
activities (pg 162 Internal Control and Cash). This
occurs when one person is doing two different
responsibilities just like Sam. The internal Control that
is not being applied is Segregation of Duties. It is better
for the two to be a separate responsibility because it
will minimize the billing errors.
Bank reconciliations are done by the person who
is responsible for all cash responsibilities.
http:yourdictionary.com /accounting_statements.org
Retrieved 2/13/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements
--------------------------------------------
Appendix B
Physical, mechanical, and Allows the company to control Our job has
electronic controls assets through physical or Cisco and th
electronic based systems or employees b
programs. lunches. Als
long the CSR
or working.
Physical con
security gua
identification
References:
http://www.investopedia.com/terms/r/retainedearnings.asphttp://finan
cial- Retrieved 2/18/2010
statements.suite101.com/article.cfm/financial_statements_the_p_l.
Retrieved 2/18/2010
--------------------------------------------
DQ2
Discussion Question 2: Post your response to the
following:
Select a management function (planning,
directing and motivating, or controlling) and explain
how that function relates to business as a whole. Next,
select a different function listed by a classmate.
Discuss with your classmate how the functions you
each selected complement each other.
The management functions that I choose was
controlling. Controlling job is to make sure that
the each department/person is keeping the company's
activities or plans on track and in order to achieve that
they must work closely with Management planning
function. Controlling continually compares the
company's performance to make sure that the planned
standards are being met. In my opinion this is known as
the "dirty work". Controlling operations have to know
what to look for and how to keep track of all the
company's activities. They have to take actions and
quickly correct any errors and make sure that the
company goals are being achieved in a timely matter
or the time that it was planned. If there are errors it is
job of the controlling operations to take quick action.
The controlling operations not only correct errors after
it happens but they also are in charge of foreseeing
any potential errors and act quickly to get that
resolved.
Another response
I chose Controlling as part of the management
function. The controlling function relates to business as
a whole because it helps monitoring the firms
performance to make sure the planned goals are being
met. Managers need to pay attention to costs versus
performance of the organization. let say, if the
company has a goal of increasing sales by 10% over
the next two months, the manager may check the
progress toward the goal at the end of month one. If
they are not reaching the goal the manager must
decide what changes are needed to get back on track.
--------------------------------------------
Kamilah Crooms
For example,
The flowers are $10 per unit. The variable
cost per unit is $4.00. The contribution
margin will be ($10-$4) = $6. The fixed cost
is $3. We subtract Contribution margin
Fixed Cost= Net income. The net income is
$3.00.
Define contribution ratios
The contribution margin ratio is the contribution
margin per unit margin divided by the unit selling
price.
statements.suite101.com/article.cfm/cost_volume_
profits*the_p_l. Retrieved 2/28/2010
//http:yourdictionary.com /CVP.org Retrieved
2/26/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements
--------------------------------------------
Dear Consultant,
Appendix C
Budgets Matrix
Directions: Using the matrix, define each of the budgets listed and
briefly describe its uses.
Budget Definition Describe its uses
Another response
In a business, a budget helps a business make good
decisions because they are used by the company to
plan for future events and coordinate the events and
duties in the company. They also gives objectives used
to evaluate the performance of the company on each
level which can help to make future decisions that will
not hurt the company based on the projected
objectives. It can also be used to alert the company of
possible problems or negative trends in the company
that need to be addressed so that there is a clear
picture of the overall health of the company before
decisions are made. The budget helps the company to
be able to make an informed decision when making
one. It is there in order to make sure that making a
decision like taking on another company will not hurt
the company and is something that the compnay can
sustain based on the budget.
DQ2
Discussion Question 2: Post your response to the
following:
What are some of the different types of
budgets?
Describe in detail one type of budget covered in
the text.
Describe what the budget is used for and what
information it provides a business.
Then, as you respond to your classmates,
discuss how the budget you described relates to the
budgets they described.
Discuss how a business benefits from each of
the budgets.
Another response
I chose to write about the Production Budget. The
Production Budget shows the cost of each unit needed
to produce an item or manufacture a product. The
formula used by the Production Budget :
Ratio Analysis
(Individual Assignment)
c) Find out what the fixed cost and determine the budgeted
amount for each unit
Read the Ethics case, "A Sad Tale: The Demise of Arthur Anderson"
located in the WileyPLUS Week Fundamentals of Corporate Finance
Chapter readings.
Another response
Accounting has taken a whole new meaning to me in my
vocabulary. Prior to this course, I just took accounting as a
calculator and crunching numbers. I now have a new respect for
accounting and all the aspects that are involved. I never once took
into consideration profit, sales, revenue, and balance sheets also
being included with accounting. There is so much more involved
with accounting, and had I not taken this course I would have
never known. Accounting is a very important part of running a
business. I feel that it is imperative to all people thinking of opening
a business should take some type of accounting class to become
more aware of how to run the accounting part of a business.
--------------------------------------------
Business Plan
By
Kamilah T. Crooms
The name of my business is called DestinyWear.
DestinyWear is a urban fashion clothing company for
woman, men and youth. DestinyWear specializes in
making clothing for every occasion. My name is
Kamilah Crooms and I am the owner and CEO of
DestinyWear.My goal is to ensure that my company will
be succesfull in all areas and in each department. In
order for me to make sure that the company was going
to begin in the right direction I had to priortize what
was most important in establishing my business plan.
The main priority is that I had to first choose the
appropriate business structure, a high demanding
product, and most of all an outstanding accounting
team.
Business Structure
Upon establishing DestinyWear I had to decide which
business struture that I felt was best for me to pursue. I
decided that as a Entreprenuer the best choice for me
abd the direction of the company would be for me to be
sole proprietorship. Sole proprietorship allowed me to
be the sole owner of DestinyWear. The first and most
important reason that I wanted sole proprietorship is
because it is much easier to start a business as sole
proprietorships. Sole proprietorship takes all the profit
that and doesn't have to split it between any other
owners or corporations. I also want the power to make
and change decisions along the way without having to
first consult anyone else.
DestinyWear Products
DestinyWear products will range from jeans, shirts,
accessories and shoes. The company will first start off
with its most profitable product and that will be the
DestinyWear designer jeans line. The jeans line has
over twenty different jeans designs
from straight leg, baggy, cargo, overalls, shorts and
much more. The jeans line will provide services within
the United States and Canada and will eventually
service International customers. The DestinyWear jeans
line will have its own building. In this building the
bottom floor will consist of the factory and the top floor
will have the different departments such as
management, marketing and most importantly the
accounting department.
REFERENCES
//http:yourdictionary.com /CVP.org Retrieved
3/20/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements. March 19, 2010
Drucker, P. Managing in the next society 2002.
retrieved march 19,2010
--------------------------------------------
Response 2
Go to the U.S. Securities and Exchange Commissions
Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
U.S. Securities and Exchange Commission (SEC)
According to the SECs website The mission of the
U.S. Securities and Exchange Commission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation(U.S. Securities and
Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret
federal securities laws; issue new rules and amend
existing rules; oversee the inspection of securities
firms, brokers, investment advisers, and ratings
agencies; oversee private regulatory organizations in
the securities, accounting, and auditing fields; and
coordinate U.S. securities regulation with federal, state,
and foreign authorities. (U.S. Securities and Exchange
Commission, 2010)
Financial Accounting Standards Board (FASB)
According to the FASBs website The mission of the
FASB is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. That mission is accomplished through
a comprehensive and independent process that
encourages broad participation, objectively considers
all stakeholder views, and is subject to oversight by the
Financial Accounting Foundations Board of Trustees
(Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify
financial reporting issues based on
requests/recommendations from stakeholders or
through other means. The FASB Chairman decides
whether to add a project to the technical agenda, after
consultation with FASB Members and others as
appropriate, and subject to oversight by the
Foundation's Board of Trustees. The Board deliberates
at one or more public meetings the various reporting
issues identified and analyzed by the staff. The Board
issues an Exposure Draft to solicit broad stakeholder
input. (In some projects, the Board may issue a
Discussion Paper to obtain input in the early stages of a
project) The Board holds a public roundtable meeting
on the Exposure Draft, if necessary. The staff analyzes
comment letters, public roundtable discussion, and any
other information obtained through due process
activities. The Board redeliberates the proposed
provisions, carefully considering the stakeholder input
received, at one or more public meetings. The Board
issues an Accounting Standards Update describing
amendments to the Accounting Standards Codification
(Financial Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of
fairness, accuracy, and understandability of financial
accounting and reporting. Both agenecys accomplish
these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that
the FASB regulates financial reporting in the private
sector of businesses (but are subject to the rules and
regulations of the SEC) and the SEC deals with
regulating the financial reporting of publicly held
corporations.
I believe that the SEC has the greatest influence over
financial statements reporting because they have the
final approval on all changes of the rules and
regulations. The Sec can also bring civil or
administrative enforcement actions against individuals
and companies in violation of the securities laws.
References
Financial Accounting Standards Board. (n.d.). Facts
about FASB. Retrieved July 15, 2010, from Financial
Accounting Standards
Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May
3). The Investors Advocate: How the SEC Protects
Investors, Maintains Market Integrity, and Facilitates
Capital Formation. Retrieved July 15, 2010, from U.S.
Securities and Exchange
Commission: http://www.sec.gov/about/whatwedo.shtm
l
Week 1 DQ 2
Due Thursday, Day 4
Search the Internet or the Online Library for
information about the Sarbanes-Oxley Act. A useful
guide to some of these provisions is located
at http://www.soxlaw.com. Summarize at least two
provisions of the law, and discuss your interpretation of
these provisions with your classmates. Do you think
this law will make financial statements more reliable?
Also, discuss how Sarbanes-Oxley establishes
boundaries to ensure ethical practices. What does the
law allow or prohibit, and why?
Response 2
Section 802 of the Sarbanes-Oxley Law defines the
penalties that may be assessed against individuals who
failed to comply with the Act. An individual could be
subject to 20 years in jail for altering, destroying,
mutilating, concealing, falsifying records, documents or
tangible objects. Guilt is define by the intent to impede
a legal investigation. This part of the law gets to the
heart of how Arthur Anderson reacted by destroying
documents important to Worldcom. The law further
defines that any accountant who knowingly violates
their ethics by wilfully violates the requirements of
maintenance of all audit or review papers. These
papers are subject to review up to five years.
In this case I think the company has achieved success with a net
profit of $174k. If the company were unable to be profitable, the
company would eventually go out of business. We would be able to
tell if the company was not profitable by looking at each section
individually. The cost of goods sold is what stands out for me. If we
pay more to make the product then we are actually selling it for,
there is no profit to be made. So, I think it should all start there.
--------------------------------------------
Response 2
Explain what can be found on a statement of
stockholders equity.
The major elements of stockholders' equity include
capital stock, paid-in capital, retained earnings,
treasury stock, unrealized loss on long-term
investments, and foreign currency translation gains
and losses.
DQ 2
Week 3 DQ 2
Due Thursday, Day 4
Response 2
A companys net income is not the whole picture, just
part of it. There are lots of things that contribute to the
net income that may not be significative to the
companys success. If the value of a dollar has a
sudden change that can affect the bottom line if the
company happens to hold the medium of exchange
that can benefit by the change that might occur. The
company can falsely inflate the bottom line. A
companys net income is coupled with liabilities, cash
flow, and selects financial ratios. Looking at it this way
is a much better way of seeing what the companys
success is like. A company can change up many things
to make it look like their income is better. These things
that can be changed are single sales events, cash
infusion, or false financial statements. Some things like
debt that a company has, the companys cash on hand,
their capital assets conditions, or even their sales
trends. To figure the success of the company, you must
look at the whole picture. One thing cannot tell you all
the facts of the companys affairs. You cannot tell the
net income of the company just from the bottom line.
Look at all the financial records.
Response 3
Provide an example from the text or the Internet that
demonstrates a situation in which a companys net
profits appeared good in the statements, but the gross
or operating profits presented a different picture.
Discuss how this might have occurred. Respond to the
following question, addressed in Problem 3.6 on p.
109 (Ch. 3): Why is the bottom-line figure, net income,
not necessarily a good indicator of a firms financial
success? Look for indicators like liquidity or solvency
to answer this discussion question.
Net income is not necessarily a good indicator of a
firms financial success because they have ways to
manipulate it by increasing their revenues or hiding
some of their expenses. For investors trying to decide
where to invest their money, they need to look more
into assessing how the company came up with the
numbers they presented.
Reference:
Stock Split
University of Phoenix
Stock Dividend
In the present time, the stock dividend has become
important concept. When dividend is given in form of
stock, it is called stock dividend. In this form of
dividend, the cash does not use. It is important, when
the corporation declares stock dividend, the market
value of the share decreases because the number of
stock increases. The many companies prefer stock
dividend due to the tax benefit. If the individual gets
stock dividend, he does not pay any tax on stock
dividend. Thus the stock dividend reduces tax burden.
On the other hand, the ownership of investors also
spurs up in the company because the number of
holding share increases. There is also disadvantage of
stock dividend. The market value of the share
decreases, so the market value of holding also
decreases (Kennon, 2009).
The ABC Company is leading company in its industry.
The number of outstanding share of the company is
one million. On the other hand, the number of investors
is five millions. The value of market capitalization is
$100 million. The management declares 20% stock
dividend. Thus the 200000 shares will be distributed as
a stock dividend. The number of outstanding share will
be increased by 200000 and the new total number of
outstanding stock will be 1.2 million. On the other
hand, the new value per share in the market will be
$83.33 (100 million/1.2 million). This example is taken
from below mentioned link:
Stock Split
The stock split is also an important concept. When the
management wants to increases number of shares, the
management follows this method. In this method, the
face value of the share is split and number of share
gets increased. Due to increment in number of
outstanding share, the market value of per share also
gets affected but the total market capitalization of the
company does not affect. Both stock split and stock
dividend increase number of outstanding shares but
both are different due to the accounting treatment. In
the stock split, the investors do not get any real
benefit. It is also known as non-cash distribution of
dividend. The motto behind stock split is to increase
trading of the shares in the market (Baker, 2009)
For example, the face value of per share is $100
and the total outstanding shares are 100 million. If the
management of the company announces stock split in
ratio of 1:2, the total outstanding shares will be
increased by 100 million, thus the new total number of
the share will be 200 million. On the other hand, the
face value of the share will reduce by 50%. So the new
face value of the share will be $50. Due to effect of
stock split, the holding share of the investor will also
increase in the prorate basis. If the investor has 10
shares, now he will have 20 shares. It is important
thing that the total issued capital will not be changed.
The illustration of stock split has been got from
following link:
Reverse Stock Split
The reverse stock split is just opposite of stock split. In
this process, the management reduces the number of
outstanding shares. The company increase face value
of the share. In this method corporation decides a ratio
such as 2:1. Thus the company accumulates two shares
in one share. In this method, the total market value of
company does not change. Due to reverse stock split,
the earning per share and face value of per share rises.
Thus the reverse stock split provides just opposite
result from stock split. It is important question, why
company selects this method. When the management
seems that the face value of the share is less as
compared to competitors then the company goes for
this method to make its share value to equal to
competitors shares face value. It is also a sound
strategy to increase treading of shares. If the face
value of share is too cheap in comparison to
competitors, the investors will be discouraged for
investment. For increasing the confidence of investors,
the management uses this method (Mladjenovic,
2009).
For example, an investor holds 100 shares of XYZ
Company and the face value per share is $50. If the
management go for reverse stock split option and
declares one share for 10 shares then the holding of
the individual will reduce 9 shares for every 10 shares.
Thus the new holding of the investor will be 10
(100/10) shares but the face value per share will be
$500. It is also important that the total market
capitalization will remain as same as before reverse
split. The example of the reverse split is take form
below mentioned link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John
Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May
31, 2010, from
http://beginnersinvest.about.com/od/dividendsdrips1/a/
aa040904_2.htm
Mladjenovic, P. (2009). Stock Investing for Dummies.
Dummies.
--------------------------------------------
Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009).
Managerial Accounting: Tools for Business Decision
Making. John Wiley and Sons.
--------------------------------------------
The net income of Kodak has decreased a bit; it appears that the
company is more profitable. By conducting a side by side analysis
from 2004 to 2003 the company has increased in current assets and
decreased in total assets. It appears that the company went down in
property, plant and equipment net as well as discontinued operations.
So, despite the decrease in total assets it looks like the company has
made a good decision.
The company has also decreased its total liabilities by about 4%. I
believe this to be good because the short term borrowings and long
term debt has decreased. To me, this means that the company is
tightening their belt and paying off old debt.
Total shareholders equity has down a little bit in dollars, but on the
percentage level the companys percentage has gone up. I believe this
is because the company issued $104k more shares in 2004 than in
2003. The company has the same amount of shares outstanding in
2004 that it did in 2003 as well. Retained earnings on the stock have
gone up in 2004 as well. I believe this is contributed by the more
shares that have been issued.
In what ways does the statement of cash flows relate to the balance
sheet and income statement?
Response 2
In what ways does the statement of cash flows relate to the
balance sheet and income statement?
The cash flow statement relates to the income statement and balance
sheet. The net income from the income statement is listed on the
statement of cash flows. Operating activities are analyzed on the
statement of cash flows; this section of the statement reconciles the
net income to the actual cash the company received from or used
during operations. The second section of the statement of cash Flows
is the cash flow from investing activities which include purchase or
sale of assets. The last section in the Statement of Cash Flows is the
cash flows from financing activities that includes raising cash by
selling stocks/bonds or borrowing from backs; or cash out flows from
paying back loans. The balance sheet shows the different account
balances at the end of the accounting period. The statement of cash
flows reflects changes in the accounts listed on the balance sheet
between accounting periods. The net cash from operating, financing,
and investing activities are added up to calculate the net change in
cash.
Week 5 DQ 2
Due Thursday, Day 4
Response 2
Discuss how the statement of cash flows is utilized by investors. If you
were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which
other sections of the statement might be important to an investor.
1.
2.
3. Candela Corporation
5.
6. Candela Corporation
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30. Reference
31.
34.
35.
36.
37. --------------------------------------------
FIN 571 Week 5 Connect Problems
HARELY
STARBU DAVIDSO
CKS N RITE AID
2008 2008 2008
NET INCOME /
STARTING $ $ $
LINE 315.5 - (1,079.0)
OPERATING $ $ $
ACTIVITIES 1,258.7 (684.7) 79.4
$
INVESTING (1,086. $ $
ACTIVITES 6) (393.3) (2,933.7)
FINANCING $ $ $
ACTIVITIES (184.5) 1,293.4 2,904.0
$ $ $
CASH (11.5) 190.7 49.9
Net
Income/Starti 933. 1043
ng Line 0 84 .15
Cash from -
Operating 684. 798. 761.
Activities 65 15 78
Cash from - -
Investing 393. 391. 35.2
Activities 25 21 6
Cash from - -
Financing 1293 1037 637.
Activities .39 .80 02
Net Change in 190. 164. 97.4
Cash 70 46 2
Net Cash -
Beginning 402. 238. 140.
Balance 85 40 98
Net Cash -
Ending 593. 402. 238.
Balance 56 85 4
RITE AID
200 200
8 7 2006
Net -
Income/Startin 107 26. 1273
g Line 8.99 83 .01
Cash from
Operating 79.3 309 417.
Activities 7 .15 17
Cash from - - -
Investing 293 312 231.
Activities 3.74 .78 08
Cash from -
Financing 290 33. 272.
Activities 3.99 72 84
-
Net Change in 49.6 30. 86.7
Cash 1 08 5
Net Cash -
Beginning 106. 76. 162.
Balance 15 07 82
Net Cash - 155. 106 76.0
Ending Balance 76 .15 7
(c) Write a short analysis
of the information
gathered. Your discussion
should address, among
other things, whether
cash flow from operating
activities is large enough
to cover investing and
financing activities, and if
not, how the company is
financing its activities.
Discuss differences and
similarities between the
companies you have
chosen.
Response 2
Post your answer to Study Question 5.2 on p. 180 (Ch.
5). As you read your classmates responses, consider
the following scenario: If you compared two different
companies that utilized two different valuation
methods, how might the quality of the results differ?
Also, comment on the difficulty of making comparisons
between two firms that use different valuation
methods.
It is very important to understand which inventory
valuation method is being used to determine the profit
numbers quality. The balance sheet, statement of cash
flow and income statement can be directly impacted by
the valuation method that used to determine the costs
of inventory. The three methods that are used are FIFO,
LIFO and Average Cost. The valuation ratios can be
dramatically affected depending on the inventory
valuation that is being used over a long-term period;
especially because prices are likely to rise. When using
FIFO you can increase net income, but then at the
same time raise the amount taxes that business is
obligated to pay. When using LIFO the inventory can be
obsolete because they are old this will result in lower
net revenue because the products pricing is higher. The
Average Cost results usually fall between LIFO and
FIFO. The bottom line can be affected mainly by the
inventory analysis and the ratio results that are formed
from that analysis. It is easier to compare companies
that are in the same line of business, so I believe that
quality of results would differ tremendously if different
valuation methods were used. If you use LIFO that
company may seem unattractive but they are
performing well, as for FIFO it may look good as for
profit, but may not be performing well.
DQ 2
Week 7 DQ 2
Due Thursday, Day 4
Post your answer to Study Question 5.6 on p. 180 (Ch.
5). Discuss the consequences of poor quality reporting.
What has the U.S. government done to improve the
quality of reporting after recent financial scandals such
as Enron?
Response 2
I believe the impact and importance of this write-off
event is a very big matter. It is obvious how they
handled it that it was a scandal from the start. I think
that everyone involved had a big role in how things
played out. To me I think of the investors as a really
big hit to this but also feel that audit committees have
to be held responsible as well. It has been shown over
many examples that adit oversights are happening to
financial reporting. Although I do feel they are getting
better and tighter due to conforming tightly with the
GAAP requests. I feel over time the accounts
receivable should have been written off in smaller
increments and not all taken by $405 million at once.
Maybe that isn't correct but it would have been easier I
would think to take the receivables over time.
Response 3
Wall Street should have read the footnotes and seen
that the write off was for accounts receivables and
should have been reported in the allowance for
doubtful accounts. Every company that allow sales on
credit face doubtful accounts; therefore, the write off
may reoccur. The significance of this transaction is that
WorldCom want to cover up the $405 million dollars
that it was unable to collect from its customers, but
WorldCom wrote off a large sum of money rather
recording the write-off as needed and the analyst over
looked it. Depending on how the company policy is for
writing off accounts, from 1998 to the 3rd quarter in
2000 is 11 quarters. If the company wrote off bad
accounts quarterly it should have wrote off
36,818,181.82 per quarter. Investors would not want to
continue to invest into a company that has poor
collection skills, or poor management. Unusual items
are simply for those items that are not recurring
operating expenses. Bad debts do not fall under this
category. Since the Enron and WorldCom scandals
many rules and regulations have been put in place by
the government such as SOX. More people are being
held accountable for their actions and consequences
follow poor quality reporting such as fudging the
books.
--------------------------------------------
2.
3.
4.
5. Presenting to Stakeholders
7. Presenting to Stakeholders
10.
11.
12.
16.
17.
18.
19.
20.
21.
22.
23. Reference
24. Axia College. (2007). The Analysis of Financial
Statements. Retrieved June 28, 2010,
26.
27.
28.
29.
30.
31.
32.
33. --------------------------------------------
FIN 571 Week 5 Learning Team Reflection
Debt Scenario would increase the debt ratios from to 50%. Equity
Scenario would reduce the debt ratio to 40%. With Debt option,
earnings per share would be higher. Interest declines to 2.86 times
with the Debt option while times interest earned increases to 3.75
times with the Equity option. Either option exhibits a good use of
financial leverage because for both, the financial leverage index
being greater than 1. However, it is higher using the Debt option.
--------------------------------------------
Industry
--------------------------------------------
Response 2
I have learned that it takes someone that has the
patience, tenacity, and motivation to truly analyze the
statements. If you go about it not wanting to do the
work you wont give a good analysis. I found that you
have to be willing to dig deeper than most would to get
a full picture of the company. I found that it is not an
easy task to complete. For me the process is a tedious
one. I don't think I would want to go into that type of
accounting where I have to analyze the statements of a
company. I think for me I would be better in specialized
accounting like A/P or A/R. I am better at figuring out
problems and figuring out ways to make them better. I
am better at specific tasks so for me I wouldn't want to
analyze the statements. I am glad to have learned how,
because at some point I am sure it will come in handy.
Response 3
All financial statements are essential documents
because they tell what has happened to a business
over a period of time but most users of financial
statement are more concerned about what will happen
in the future. Stockholders and creditors are
concerned with future earnings and dividends and
company's future ability to repay its debts.
Management is concerned with the company's ability
to finance future expansion.
Working as a bookkeeper I do all the steps in monthly
cycles consisting of entering transactions into the
journals, working with A/R, A/P, payroll and preparing
the reports, but I have not been able to analyze the
reports the way I learned in this class. I learned how
important is to monitor and interpret the results. I
learned how to compare financial statements of a
company with a company from the same industry and
point out the differences and similarities. This class
taught me the importance of analyzing the Income
Statement, Balance Sheet, Cash Flow Statement and
Stockholders Equity each one individually. I learned
how essential is the quality reporting and how useful
this quality is in business decision making. I learned
about key financial ratios: liquidity ratios, activity
ratios, leverage ratios, and profitability ratios. All these
ratios are valuable as analytical tools and will help me
indicate the areas of strength and weakness in a
business. Even though I learned the information step
by step in this class I tent to go over every single
chapter all over again to better absorb the material.
This class taught us the potential of some management
manipulations of financial statements, thus following
the general accounting rules, being honest, ethical and
professional are the ways on leading to safe and
profitable decisions.
--------------------------------------------
Resources:
Managements Strategy
It is clear from the financial and the strategic analysis of the Apple
Inc. that the management of the company believes in continued
research, innovation and product development. It may be the sole
reason that why the firm avoids the cash dividend and rely over the
stock options. Besides the hardware business of computer the apple is
also focus on developing application software operating system, and
all such software application which added the value of its product.
The management is of the view that R&D, integrated marketing
channels and its product diversification is the source of competitive
edge against rivals of its industry. Management is aware of the need
of the investment in the promotion and advertisement activities; it
increases the brand equity, brand loyalty and awareness about the
products. Management also considers focusing on the retail store as it
is the source to remain in contact with customer and a way to market
the product directly; it is also a way to cross sell the market to
customer.
Evaluating Financial Health 3
As far as the solvency risk is concern in the long run the debt
equity ratio is 0.11 for the year 2009, which is increased from 0.08 of
2008. Here it is important to refer to the industry average of 0.07
(OnlyHardwareBlog, 2010). Hence it is apparent that though the
APPLE Inc. is more risky in the long run, but it does not sound like
the alarm.
When comparing the Apple with its major competitor like Dell
& HP, Apple marks higher price earning ratio of 19.10 times that is
greater than Dell and HP, which is 16 times and
References
http://www.electronista.com/articles/10/06/04/isuppli.sees.apple.at.34
pc.world.market.share/
http://www.hardwaremarketplace.com/computer-hardware/
msn.com. (2010). Apple Inc: Key Ratios. Retrieved July 2, 2010 from
http://moneycentral.msn.com/investor/invsub/results/compare.asp?
Page=PriceRatios&Sy
mbol=AAPL
http://onlyhardwareblog.com/?p=2107
--------------------------------------------
Identify a capital improvement that could help Betty with her Alpaca
business.
Financial Analysis
The price to sales ratio and price to book value ratio have shown
negative trends in the last three years, which shows that the stock of
the company is available at cheap price as compare to the price it
was carrying three years back. The price to sales ratio, which was
0.55 in 2008, was decreased to 0.46 in 2009 and then improved to
0.51 in 2010. Similarly, price to book value ratio reduced from 3.12
in 2008 to 2.83 in 2009 and then improved marginally to 2.86 in
2010. This represents the better opportunity available for the
shareholders to invest in to the stock of the company. The book
value per share of the company has also increased in the last three
years. It was 16.26 dollars per share in 2008, which increased to
16.63 dollars per share in 2009 and further improved to 18.69
dollars per share in 2010. This represents the increase in the
retained earnings of the shareholders in the company (Shim &
Siegel, 2007).
Wal-Marts current assets level has shown stability in the last three
years for the company, which shows the lesser investment in current
assets for the company even with the increased sales. In 2008 the
cash and marketable securities available with the company was
48020 million dollars, which increased to 48949 million dollars in
2009 and then decreased to 48331 million dollars in 2010.
Wal-Marts current stock price is 50.56 dollars. The stock has gone
up as high as 56.27 dollars, and as low as 47.35 dollars in the last
year. The earnings per share of the company which was 3.16 dollars
per share in 2008, was increased to 3.35 dollars in 2009. Earnings
per share further increased to 3.76 dollars in 2010. The analysis
shows the improvement in the earnings of the company in the last
three year. The current price earnings ratio of the company is 13.2
which is less than the industry average of P/E ratio of 15 times
(Wal-Mart Stores Inc (WMT), 2010).
References
Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31, 2010, from
http://finance.yahoo.com/q/co?s=WMT+Competitors
--------------------------------------------
Financial Statements
All four of these financial statements are all extremely important tools to use in
the business. Another statement that was not listed but is often used is called
comparative statements. Comparative statement gives a side by side
comparison of the financial statements above.
Reference
--------------------------------------------
ACC 290 Week One - DQ #1 What are the four basic financial
statements?
Financial Statements
Today, I will be describing a balance sheet, income statement, retained earnings
statement, and statement of cash flows and how a company uses these financial
statements as a tool to make future decisions for the company.
Balance Sheet
A balance sheet a statement sheet that reports the companys financial balances
of the business. This sheet includes the companys total of assets and liabilities.
It is used for all three types of business sole proprietorship, business partnership
and corporate business companys. Creditors rely on this financial sheet to
determine if the company will be able to repay.
Income Statement
An Income Statement is a financial statement that shows the companys profit
and losses. It basically shows all the companys gains and losses that were made
during a period of time. After the company deducts the expenses from the
revenue then you will get a total net income. This is a great statement to use
especially because this will show investors how much net income is the company
bringing in, or how financially stable the company truly is.
Retained Earnings Statements
Retained Earnings Statements reports the changes to the retained earnings (net
income in a corporation) during a certain time period. This financial statement
shows dividends, profits and loses. Investors and Lenders monitor the retained
Earning Statements especially when it comes to monitoring dividends. Some
invest use this tool to see if the company is paying high/low dividends. Retained
Earnings Statement is part of the balance sheet under Stockholders equity.
All four of these financial statements are all extremely important tools to use in
the business. Another statement that was not listed but is often used is called
comparative statements. Comparative statement gives a side by side
comparison of the financial statements above.
Reference
--------------------------------------------
What are debits and credits? How are debits and credits used to record
business transactions? Compare and contrast sole proprietorships,
partnerships, and corporations.
Sole proprietorships means that a business that owned by one person.
That includes and not limited to all profits and losses, debts and unlimited
liability, all will come from the solely one owner and not a group or in this
case a partner or co-owner etc. Partnerships are seen much differently
than sole proprietorships. Partnerships is a business that owned by more
that one person/s. This is the number one difference from being a sole
proprietorship or sole owner. Basically, two or more people come together
and split the cost, debts, and liability. Corporations is an business that has
separate entity owned by stockholders. The huge difference between
corporations and the other two is that they are owned by stockholders.
Stockholders make decisions that is first best for their company, secondly
the company that they have together.
Why would a entrepreneur want to choose one over the other?
An Entrepreneur is a person that wants to start a business with their vision
and have more power of the decision making. The best choice for an
entrepreneur is to choose sole proprietorship out of all the three choices.
The first and most important reason is because it is much easier to start a
business as sole proprietorships. Sole proprietorship takes all the profit that
and doesn't have to split it between any other owners or corporations.
If I was to start a new business which one would I choose?
In this case it depends on the type of business. My case I will be opening a
hair salon and I would prefer sole partnerships. i choose that because I
want to be in control and I don't want to split the profit.
--------------------------------------------
references
http://www.investopedia.com/terms/i/intangibleasset.asp
--------------------------------------------
What kinds of problems will occur if the information does not include these
things?
Another response
The main objective of generating financial information is providing useful information
that can be used in decision-making... only if this information is relevant, reliable,
comparable, and consistent, can it be useful for decision makers. (Kieso, 2003).
Relevance gives a basis for making decisions that will impact the future of a business,
and it confirms and corrects expectations from the past. If the information makes a
difference in making decisions, it is relevant.
Reliability means that the information can be depended on and it can be proven to be
free of error, and the information is factual. The information cannot favor one set of
users over another. CPAs audit financial statements to ensure reliability.
Comparability is also an important characteristic of financial reporting... this happens
when different businesses use similar accounting principles, making it much easier for
one to compare companies, and the method used in a business must be disclosed to the
users of the information to enable the users to convert the information as accurately
as possible.
Consistency simply means that the business uses the same accounting principles on a
yearly basis... consistently. This helps decision makers analyze a company's trends. A
company can change the methods used if they can justify the change, showing that the
new method is more useful for analysis. If the method is changed, it must be disclosed
in the notes that go with the statements to show users a lack of consistency.
These characteristics are very important to a business... decisions cannot be made
based on incorrect information, and everyone involved in a business venture of any kind,
whether they be management, owners, or investors and creditors, as well as consumers,
etc. must be able to rely on the financial information provided in order to make any
type of decision. Without this information, it is difficult to imagine any business
succeeding, even for a short time.
Examples of problems that could occur without reliable, relevant, consistent, or
comparable information includes not being able to get loans or investments;
management could make decisions that cause irreparable damage to entire operations,
consumers could easily lose faith and cut their ties... the possibilities are endless for
companies that lack these qualities in their financial reporting.
DQ2
Once the information from the financial reports have been posted then a
team will review the company's financial history to see what decision were
profitable or not. The decisions that were made previous to the financial
reports being posted will show which way the company needs to go to
continue to remain #1.
Why is it important for business managers to understand the information
found on financial reports?
Another response
The information from financial reports influences business decisions because it shows where
the company stands. The managers use the information from the financial report compared to
the current year from the previous year, whether the company growths or losses. It is very
important for business managers to understand the information found on financial reports
because the information from the financial reports enables business managers to see how to
improve and keep the business afloat. It also gives business managers an insight what came in
and went out and the total operating cost of the company as well as cutting cost in a certain
areas. The information from the financial reports helps the manager manages the business
accurately.
--------------------------------------------
By
Kamilah Crooms
Accounting 220
Jess Stern
The accounting department receives from sales invoices once a month. Most of the
scenario most of the information that has been turned in has information that is
missing on the invoices. I would say that the internal controls that are not being
and must be turned in complete. These documents show proof of delivery or proof of
services to the customer. Any incomplete documents can be very costly and can
cause a delay in the company being paid for any services rendered. For example,
drivers verify the load and sign for the load prior to leaving the yard, these
documents says that the load left in good condition. Well, it so happened that we
allowed a driver to leave without signing the paperwork. This caused a delay in
accounting because we had to get signatures from the driver and the customer
Rob, Sue, and Bob use the same cash register at the donut shop.
Rob, Sue, and Bob all use one register has often turned into not
the best decision ideally for the company. It can increase the risk
for the drawer being short and it will be hard for the company to
find out which employee or employees had shorted the register.
person to be in control of a specific job or have authority to make decisions (pg 161
Internal Control and Cash). When the company signs one person to be responsible
over the register it will allow the company to hold that one person responsible for any
shortages.
In this case Sam is ordering materials and paying all the bills. This process is
actually known as related activities (pg 162 Internal Control and Cash). This occurs
when one person is doing two different responsibilities just like Sam. The internal
Control that is not being applied is Segregation of Duties. It is better for the two to be
Bank reconciliations are done by the person who is responsible for all cash
responsibilities.
The problem with this scenario is that the same person is responsible for all cash
responsibilities, why is this person doing the only one that does this job? Having one
person take on such a major responsibility increases the chances of embezzlement and
thief. The internal control that is not being applied is rotating employees duties and
control of one job, the company should encourage vacations or switching positions to
New checks came in and are left on the shelf with other supplies.
This is a tough scenario because there are all sorts of internal controls that are not being
used in this case. I would say in my opinion that the first internal control that comes to
my mind that is not being applied is bonding of employees who handle cash.
Every employee that works near or with expensive equipment should be held reliable
or responsible for the companys assets. Bonding of employees who handle cash
protects the company by insuring that the employee is or isnt a risky applicant
(background checks) or reassuring that the employee that they will be prosecuted to
the fullest extinct if they are found guilty of thief. For example, I had worked at Mc
Donalds and
there were my shift managers and one employee that were caught with stealing
money from the company. This situation had happen very differently. The armor truck
dropped off a deposit that belonged to another company (armors mistake) but they
signed it. Those employees thought that nothing was going to be traced back to
them but the little did they know, all evidence traced back to them. They each
Everyone has access to the computer system and the last audit was seven years ago by
This scenario has two things that are going on at the same time. I will first start off with
the computer system and how everyone has access to the computer. The internal control
that is not being applied is Physical, Mechanical, and Electronic Controls. This allows
informational protection for the company and for their employees. Todays technology
age most companies are investing in a computerized program. This will help protect
from internal errors and external protection. For example, all companies invest in a
virus protection this will ensure that the companys information is protected and not in
Invest idle cash occurs when any excess funds or cash needs to be invested. The
money should be highly invest and risk free. For example, a major company should
make investments with their assets into profitably investments and risk free.
This is when a company sets aside money for major cash needs. We live in a world
that things happen daily. A good company would set aside emergency funds. For
example, during a terrible thunderstorm, the winds practically ripped off the roofing
shingles off a commercial business. The company will be able to use the money for
emergency.
Delay payment of liabilities is when a company pays bills not too soon and not late.
This allows the company to have money available for bills that that really need to be
This occurs when the company keeps the inventory low so that it will bring in more
profits. For example, if the managers at a fast-food over plan and fix too many
hamburgers and the customers dont buy it, then the food will go bad and the
This occurs when money is owed to the company, the company cannot claim these
until the funds have been received. Some companies offer incentives to encourage
customers to pay early or on time. For example, my job encourages their customers
by letting them know that there will be a price increase on or after a certain date and
this really works because the customers want to pay at a lower price.
References:
--------------------------------------------
Directions: Using the matrix, list how each of the principles of internal control works, and give an
example for each. Next, list how each of the principles of cash management works, and give an
example for each.
Segregation of duties This is when the company has more than one person A church- You have p
to control a task or job and then you have so
logs in what was rece
Physical, mechanical, and electronic controls Allows the company to control assets through Our job has a system
physical or electronic based systems or programs. employees breaks an
long the CSR have be
Independent internal verification Any information that can be reviewed , compare, and My job has a way of
reconciliation by a employee when someone says t
order we can go back
compare the number
count to determine if
Other controls Bonding of employees, company protects against Our company fired a
abuse of assets. had used the compan
personal us that was
Plan the timing of major expenditures A company wants to make sure that there is money During the recession
set aside for major cash needs expected so some com
Delay payment of liabilities When a company pays the bills at an appropriate Ok, when times are t
time not late and not too soon. organize the bills by
soonest, because if I p
off my excess funds t
else
Keep inventory levels low Happens when a company keeps the inventory low so Sees Chocolate facto
that it will continue to bring profit are not over producin
the sit and the compa
Increase the speed of collection on Money that is owe to the company by other people or When a customer pla
receivables customers is money that can not be counted towards has not paid yet, the
the companies funds money as theirs unti
--------------------------------------------
References:
http://www.investopedia.com/terms/r/retainedearnings.asphttp://financial-
Retrieved 2/18/2010
--------------------------------------------
How would you describe the difference between financial and managerial
accounting? What are the distinguishing features of managerial accounting?
There are many differences between financial and managerial accounting.
The financial accounting statements are available to external users such as
employees, stockholders, creditors, investors, etc. This is available to them
so that they can monitor the company's performances quarterly or annually.
Managerial accounting provides financial information for managers and
other internal people or department. Managerial accounting is confidential
so it is only observed by internal users such as management, owner, and
will provided to external users such as the public. Management uses this
for budgeting purposes or to monitor profit loss/gain within the company.
Managerial accounting can be available to them as often as needed.
Managerial accounting statements is a great way for management to make
decisions based on what has been reported.
Another response
The differences between managerial accounting and financial accounting are
distinct. Managerial accounting reports are for those in managerial and decision
making positions. The managers use the financial report to answer questions,
which would advance the company and its employees. The manager would want
to know if certain investments should be made and should the company advance
an employee's salary. The manager needs the report to decide if a factory is built
or if a certain stock is brought. The financial accountant has the job of showing
the external users such as creditors and stockholders a picture of the company's
stability.
DQ2
Another response
I chose Controlling as part of the management function. The controlling function relates to
business as a whole because it helps monitoring the firms performance to make sure the
planned goals are being met. Managers need to pay attention to costs versus performance of
the organization. let say, if the company has a goal of increasing sales by 10% over the next
two months, the manager may check the progress toward the goal at the end of month one. If
they are not reaching the goal the manager must decide what changes are needed to get back
on track.
--------------------------------------------
Discuss the objectives for ACC 290 Week Two. Cost, Volume,
and Profit Formulas
By
Kamilah Crooms
Based on the formulas you have reviewed, what happens to contribution margin per
unit when unit selling prices increase?
Contribution margin is the amount of revenue left over after subtracting the variable cost.
So basically Unit sales price subtracting or minus variable cost.
The owner of Kellys Sweetheart Flowers is selling their bouquet of flowers for $10
per unit. The Variable Cost per unit is $4.00. The contribution margin will be
($10-$4) = $6. If the sells price increases to say $15, then the contribution margin
will be ($15-$6) = $9 per unit.
When fixed costs decrease, what does this do for sales? Illustrate your explanation
with an example from a fictitious company.
When the fixed cost decreases, the contribution margin ratio the net income and sales will
increase.
For example,
The flowers are $10 per unit. The variable cost per unit is $4.00. The contribution
margin will be ($10-$4) = $6. The fixed cost is $3. We subtract Contribution margin
Fixed Cost= Net income. The net income is $3.00.
The contribution margin ratio is the contribution margin per unit margin divided by the
unit selling price.
Shown in the example above, if one or more of the components changes is will cause the
net income to increase or decrease.
Reference
statements.suite101.com/article.cfm/cost_volume_profits*the_p_l. Retrieved
2/28/2010
--------------------------------------------
Discuss the objectives for ACC 290 Week One. How do they relate to
the practice of accounting and its uses in business? Identify the four
basic financial statements. 7 How should mixed costs be classified
in CVP analysis? What approach is used to effect the appropriate
classification?
According to our class materials all mixed cost must be classified into their
fixed and variable and variable elements. The method that can be used to
determine is called the high/low method. To determine the variable cost the
analysis takes the total cost and divide it with the low activity level. To get
the fixed cost then the company would have to subtract the total variable
with either the high or low activity level.
9. Cost volume profit CVP analysis is based entirely on unit costs. Do you
agree? Explain.
In my opinion when it comes to making financial decisions for the company,
often times more than one method is used. Cost volume profit is also based
on Volume or level activities, unit selling prices, variable cost per unit, total
fixed and sales mix.
14. You can find the break point in dollars by drawing a horizontal line to
the vertical axis. I you want to find the break even point in units it will be a
vertical line from the break even point to the horizontal axis.
--------------------------------------------
Budgets Matrix
Directions: Using the matrix, define each of the budgets listed and briefly describe its uses.
Manufacturing overhead budget An estimated expected amount of This list all ove
manufacturing cost for the budget cash disbursem
period
Selling and administrative expense budget Anticipated selling and Shows area of
administrative expenses in the are not listed o
budget period manufacturing.
marketing, pro
the budget per
--------------------------------------------
You know how important it is to create budgets for your household. How
does budgeting help management make good business decisions?
Budgeting is a very important skill that can be applied to everyday life and
also when it comes to making good business decisions. I really like the way
our class resources says about Budgeting. Budgeting is used as a planning
tool used by management to make good decision for the company. If a
company is successful than more than likely that means that the
management team is very good at managing the company finances.
Budgeting helps management plan ahead, defines what is most important,
shows warning signs, reach a company target without over or under
budgeting and etc.
Another response
In a business, a budget helps a business make good decisions because they are
used by the company to plan for future events and coordinate the events and
duties in the company. They also gives objectives used to evaluate the
performance of the company on each level which can help to make future
decisions that will not hurt the company based on the projected objectives. It
can also be used to alert the company of possible problems or negative trends in
the company that need to be addressed so that there is a clear picture of the
overall health of the company before decisions are made. The budget helps the
company to be able to make an informed decision when making one. It is there
in order to make sure that making a decision like taking on another company will
not hurt the company and is something that the compnay can sustain based on
the budget.
DQ2
There are many different types of budgetting. For example, there sales
budget which allows management to see how many units that need to be
produced, production budget which will allows everyone to see how many
units are going to be produced in or needed to be produced in order to
meet the inventory for that budget period. One budget that I can describe in
detail is called the direct labor budget and this budget shows how many
people, hours is needed in order to meet the required budget for that
period. This will give management an idea of how much money is needed
such as paying the cost of labor. The company benefits by each of these
budgets because it will help manage just how much money it will cost the
company during this period. Management can also see if there are different
ways to cost the company out of pocket cost down during this period.
Another response
I chose to write about the Production Budget. The Production
Budget shows the cost of each unit needed to produce an item or
manufacture a product. The formula used by the Production
Budget :
Every Easter Holiday, there appears these Hot Cross Buns and the
bakeries production department allows for the purchases for
items needed to make the buns. After Easter has gone, Hot Cross
Buns are not included in the budget.
--------------------------------------------
ACC 290 Week One - DQ #1 What are the four basic financial
statements? What is the primary purpose of each of the four basic
financial statements? What is a Flexible budget?
A Flexible budget is a budget that change or is flexible during
different levels or activity. Unlike the static budget which is a budget
based on one activity level, the flexible budget is based off of more
than one activity level.
What are the steps in completing the accounting cycle? How do the
different steps affect the financial statements? Capstone Discussion
Question: Post your response to the following:
Think back over what you have studied and learned in this course. Do you
have a new perception of or appreciation for the field of accounting and how
it contributes to business? Explain.
To be perfectly honest with you I truly had no clue what accounting did for a
company and how important it was. I always thought that accounting only
dealt with payroll. In fact accounting does much more that just payroll and
monitor company supplies (coffee, paper, pens & pencils). The accounting
sets budgets for the entire company, monitors outflow and inflow of profits,
plans budgets for each department, and much more. When I first begun
this class I was really nervous, I truly thought that I was going to have a
hard time understanding the accounting but I happy to say that I was
wrong. I understood every part of this course.
On a personal note I would like to thank you Jess. If it wasn't for your pep
talk I probably would had gave up. You are truly a great instructor. I wish
you all the best! God Bless
Another response
Accounting has taken a whole new meaning to me in my vocabulary. Prior to this
course, I just took accounting as a calculator and crunching numbers. I now
have a new respect for accounting and all the aspects that are involved. I never
once took into consideration profit, sales, revenue, and balance sheets also being
included with accounting. There is so much more involved with accounting, and
had I not taken this course I would have never known. Accounting is a very
important part of running a business. I feel that it is imperative to all people
thinking of opening a business should take some type of accounting class to
become more aware of how to run the accounting part of a business.
--------------------------------------------
What are the pros and cons of using reversing entries? Why are
reversing entries optional?
Business Plan
By
Kamilah T. Crooms
DestinyWear
Business Structure
DestinyWear Products
DestinyWear products will range from jeans, shirts, accessories and shoes.
The company will first start off with its most profitable product and that will be the
DestinyWear designer jeans line. The jeans line has over twenty different jeans
designs
from straight leg, baggy, cargo, overalls, shorts and much more. The jeans line will
provide services within the United States and Canada and will eventually service
International customers. The DestinyWear jeans line will have its own building. In this
building the bottom floor will consist of the factory and the top floor will have the
different departments such as management, marketing and most importantly the
accounting department.
DestinyWear accounting team of fine employees will all be hired through the
company. There are several requirements that have to be met in order for myself as
the owner and Human Resource department to even consider the applicant for
accounting. We looked for characteristics, education and work history experience.
The first and far most important qualifying requirements are education. The applicant
has to have a Bachelor BA/BS in accounting degree a plus if he or she has a
masters.
The second requirement is experience. The applicant must have the minimum
of five years of experience working in accounting. He or She must have knowledge
and employment experience of working with financial statements, cash management
and internal control. Employees must be experienced in Invest idle cash, planning
the timing of major expenditures, delay payment of liabilities keeping inventory levels
low, and increasing the speed of collection on receivables. In the category of
experience we had to hire applicants according to the position that had to be filled in
accounting. For example, if a position in accounting such as management or
supervisory needed to be filled, then we would look for years of experience in
management or supervisory positions. I personally prefer that every employee have
some type of management experience.
Last but not least, the employees characteristics. It is a must that every accounting
staff member has and applies professionalism, great ethic and moral skills, accuracy,
and most importantly punctuality, and reaching company deadlines. These
characteristics are very important to have at DestinyWear.
Conclusion
DestinyWear will be a very successful team not only because of the products
that we produce but because of having a great accounting team. With the help of
accounting team I DestinyWear products will be in every wardrobe in America.
REFERENCES
--------------------------------------------
ACC 290 Week 3 LT Reflection Summary
Discuss the objectives for ACC 290 Week Two. What do you think
will be the most important of the skills learned when you are in an
accounting position?
Costco Wholesale Corporation
If we look at the financial statements of the company we can find that the company is
4. It has enough amount of current asset to repay its current liability. The current ratio of
the company 8.18 indicates that the company has $8.18 liquid asset to repay its $1 of
current liability.
5. The operating cost of the company is increasing because the company is able to
Apart from this strength the company also has some weakness in its financial statement:
(iv) Increasing inventory indicates that the company inventory conversion period is
increasing.
(v) The cash from investing activity shows that the company cash outflow is more in
Net Income:
Net Income
$1,300,000
$1,250,000
$1,200,000
$1,100,000
$1,050,000
$1,000,000
$950,000
2006 2007 2008
If we look at the trend in net income of the company we can find that the company net
income looks fluctuating but it has improved it net income in 2008 as compared to 2007.
If we look at the debt ratio as percent of total asset we can find that the debt ratio is declining
in 2008 as compared to 2007 i.e. the company is increasing equity to finance debt.
As we can see that there is nothing negative in 2008 for the company and this is the reason it
has positive trend as compared to 2007. Hence there is no need to correct anything for the
company.
--------------------------------------------
According to the FASB website the mission of the FASB is to establish and improve
standards of financial accounting and reporting that foster financial reporting by
nongovernmental entities that provides decision-useful information to investors and other
users of financial reports. Since 1973, the Financial Accounting Standards Board (FASB) has
been the designated organization in the private sector for establishing standards of financial
accounting that govern the preparation of financial reports by nongovernmental entities
The major difference in the SEC and the FASB is that the SEC deals with reporting of
financial statements for all industries while the FASB deals mainly with the private
nongovernmental entities. Both are concerned with the fairness of financial reports and work
in the interest of the public. I believe that the SEC has more influence over financial
statement reporting because they can bring civil action against companies and individuals for
violations of securities laws. Although according to the FASB website, the Commissions
policy has been to rely on the private sector for this function to the extent that the private
sector demonstrates ability to fulfill the responsibility in the public interest.
Response 2
According to the SECs website The mission of the U.S. Securities and Exchange
Commission is to protect investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation(U.S. Securities and Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret federal securities laws; issue new rules
and amend existing rules; oversee the inspection of securities firms, brokers, investment
advisers, and ratings agencies; oversee private regulatory organizations in the securities,
accounting, and auditing fields; and coordinate U.S. securities regulation with federal,
state, and foreign authorities. (U.S. Securities and Exchange Commission, 2010)
According to the FASBs website The mission of the FASB is to establish and improve
standards of financial accounting and reporting that foster financial reporting by
nongovernmental entities that provides decision-useful information to investors and other
users of financial reports. That mission is accomplished through a comprehensive and
independent process that encourages broad participation, objectively considers all
stakeholder views, and is subject to oversight by the Financial Accounting Foundations
Board of Trustees (Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify financial reporting issues based on
requests/recommendations from stakeholders or through other means. The FASB
Chairman decides whether to add a project to the technical agenda, after consultation with
FASB Members and others as appropriate, and subject to oversight by the Foundation's
Board of Trustees. The Board deliberates at one or more public meetings the various
reporting issues identified and analyzed by the staff. The Board issues an Exposure Draft
to solicit broad stakeholder input. (In some projects, the Board may issue a Discussion
Paper to obtain input in the early stages of a project) The Board holds a public roundtable
meeting on the Exposure Draft, if necessary. The staff analyzes comment letters, public
roundtable discussion, and any other information obtained through due process activities.
The Board redeliberates the proposed provisions, carefully considering the stakeholder
input received, at one or more public meetings. The Board issues an Accounting Standards
Update describing amendments to the Accounting Standards Codification (Financial
Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of fairness, accuracy, and
understandability of financial accounting and reporting. Both agenecys
accomplish these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that the FASB regulates
financial reporting in the private sector of businesses (but are subject to the rules
and regulations of the SEC) and the SEC deals with regulating the financial
reporting of publicly held corporations.
I believe that the SEC has the greatest influence over financial statements
reporting because they have the final approval on all changes of the rules and
regulations. The Sec can also bring civil or administrative enforcement actions
against individuals and companies in violation of the securities laws.
References
Financial Accounting Standards Board. (n.d.). Facts about FASB. Retrieved July
15, 2010, from Financial Accounting Standards
Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May 3). The Investors
Advocate: How the SEC Protects Investors, Maintains Market Integrity, and
Facilitates Capital Formation. Retrieved July 15, 2010, from U.S. Securities
and Exchange Commission: http://www.sec.gov/about/whatwedo.shtml
Week 1 DQ 2
Due Thursday, Day 4
Search the Internet or the Online Library for information about the
Sarbanes-Oxley Act. A useful guide to some of these provisions is
located at http://www.soxlaw.com. Summarize at least two
provisions of the law, and discuss your interpretation of these
provisions with your classmates. Do you think this law will make
financial statements more reliable? Also, discuss how Sarbanes-
Oxley establishes boundaries to ensure ethical practices. What
does the law allow or prohibit, and why?
The Sarbanes-Oxley act has many provisions to give companies guidelines
for responsible, and ethical financial reporting. One of those provisions is
listed in Section 302 of the act. The provision is that periodic statutory
financial reports be certified that signing officers have reviewed the reports,
the report does not contain any untrue, or misleading information. The
financial statements fairly present the financial condition. The signing
officers are responsible for internal controls. A list of all deficiencies in
internal controls, and a list of fraud involving employees, and anything that
could negatively affect the internal controls.
Response 2
The second Section that I reviewed was the Section 302. This
actually is my favorite part of the law because it directly holds the
officers and directors accountable for the accuracy of reporting in
their financial statements. It defines that the management must
review and understand the financial statements and sign that
they are true and accurate. It also holds the management
accountable for the internal controls, requiring any deficiencies to
be reported. In the past directors of companies relied heavily on
the internal officers, management, to report the company
performance without questioning the accuracy or taking their role
on oversight committees seriously. They could hide behind a veil
of trust of the key leaders. This Section clearly puts the
responsibility for the Board to remain independent of the
executives and function more effectively on the respective
oversight committees they serve. The example I would share is
what happened in WorldCom. The company leaders shared what
they wanted to with the Board, who trusted implicitly the top
leaders. Had they questioned their legal representation or
auditors, they potentially could have uncovered the fraud that
was committed by the creation of shell companies, with
WorldCom employees as stockholders.
--------------------------------------------
There is one main difference between straight line depreciation and accelerated
depreciation. Straight line is decided by taking the cost of the assets, figuring out
the salvage cost when the use of the asset is finished and how many years of
use the asset has. A person then takes the cost minus salvage and divides the
remainder by the number of years of use. This amount is the depreciation
expense subtracted each year from the cost. The accelerated depreciation does
not have the same amount of deprecation subtracted each year. It does have the
cost minus salvage value to figure out the amount to use but is then divided out
differently. A person takes the sum of the years of a products useful life, such as
three years is 3 + 2 + 1 = 6, then a person would divide the depreciation
amount by 3/6 the first year, 2/6 the second and finally 1/6 for the final year. So
the amount of depreciation expense is larger to smaller with accelerated and
equal amounts for straight line.
The advantages of straight line method are it is easier and faster to figure. The
advantage of accelerated method is it is more accurate when figuring
depreciation expense. The accelerated method has an advantage and
disadvantage concerning taxes. A company can use the accelerated method to
take advantage of bigger tax breaks at the beginning of an assets life, but since
this amount drops during the lifespan if the company needs added tax breaks it
will not receive them from these assets in the future. With the straight line
method the amount of tax breaks are even through the life of the product. Most
companies choose this form of depreciation for reporting purpose on taxes but
will use the accelerated method to figure taxable income.
As mentioned before the advantage of straight line depreciation is it is easier to
figure and uses the same total each year for deduction of depreciation expense
but the disadvantage is that if use for taxable income and reporting a company
does not get a bigger tax break at the beginning of the assets life when they
have just put out the cost for the item and may need a bigger tax break.
--------------------------------------------
How would you calculate cost of goods sold? What items make up
cost of goods sold? How does beginning and ending inventory affect
cost of goods sold? Week 3 DQ 1
Due Tuesday, Day 2
Post your answer to Problem 3.5 on p. 109 (Ch. 3). How might
the information contained within the stockholder equity
statement be used for management and investor decision-
making? Provide specific examples of situations in which the
stockholder equity information might be used.
The statement of stockholders equity provides the changes in the equity accounts during the
accounting period more in depth than the balance sheet. The information found on the
statement of stockholders equity includes retained earnings, common and preferred stock,
and additional paid in capital. Management uses the statement of stockholders equity to
ensure they are reaching their goal of maximizing shareholder's equity. The use of market
ratios help with the analysis of the statement of stockholders equity, such as earnings per
share, price-to-earnings, dividend payout, and dividend yield. These ratios will help both
management and investors in analyzing the company. For example, if I were looking to
invest in a companys stocks I would utilize all of the financial ratios, as well as the market
ratios. The earnings per share ratio is calculated before the price to earnings ratio, P/E,
because the earnings per share ratio is used in the second. If a company pays dividends,
the dividend payout ratio will come in handy. It tells us The percentage of earnings paid to
shareholders in dividends (Investopedia, 2010, p. 1).
References
Response 2
The major elements of stockholders' equity include capital stock, paid-in capital, retained
earnings, treasury stock, unrealized loss on long-term investments, and foreign currency
translation gains and losses.
How might the information contained within the stockholder equity statement be used
for management and investor decision-making? Provide specific examples of situations
in which the stockholder equity information might be used.
Management may look at the stockholders equity statement retained earnings section to
determine if company should borrow money for capital investments or finance it through
various forms of equity. It may also be used by the stockholder to evaluate the compensation
paid to the company officers. Investors may also look at the statement for cumulative net
unrealized gains and losses before purchasing stock in the company. Investors are also
interested in the paid in capital because they can compare it to the additional paid in capital
and the difference between the two values will equal the premium paid by investors over and
above the par value of the shares.
DQ 2
Week 3 DQ 2
Due Thursday, Day 4
Net income is not necessarily a good indicator of a firms financial success because
they have ways to manipulate it by increasing their revenues or hiding some of
their expenses. For investors trying to decide where to invest their money, they
need to look more into assessing how the company came up with the numbers they
presented.
This company showed a higher net income by reporting fake inventory in which its
value was overstated and transferred over to their income statement. When the
banks assessed their financial statements, it was enough to sway them into lending
the loans they needed.
Reference:
Stock Split
University of Phoenix
Stock Dividend
In the present time, the stock dividend has become important concept. When dividend
is given in form of stock, it is called stock dividend. In this form of dividend, the cash does
not use. It is important, when the corporation declares stock dividend, the market value of the
share decreases because the number of stock increases. The many companies prefer stock
dividend due to the tax benefit. If the individual gets stock dividend, he does not pay any tax
on stock dividend. Thus the stock dividend reduces tax burden. On the other hand, the
ownership of investors also spurs up in the company because the number of holding share
increases. There is also disadvantage of stock dividend. The market value of the share
share of the company is one million. On the other hand, the number of investors is five
millions. The value of market capitalization is $100 million. The management declares 20%
stock dividend. Thus the 200000 shares will be distributed as a stock dividend. The number
of outstanding share will be increased by 200000 and the new total number of outstanding
stock will be 1.2 million. On the other hand, the new value per share in the market will be
$83.33 (100 million/1.2 million). This example is taken from below mentioned link:
Stock Split
The stock split is also an important concept. When the management wants to increases
number of shares, the management follows this method. In this method, the face value of the
share is split and number of share gets increased. Due to increment in number of outstanding
share, the market value of per share also gets affected but the total market capitalization of
the company does not affect. Both stock split and stock dividend increase number of
outstanding shares but both are different due to the accounting treatment. In the stock split,
the investors do not get any real benefit. It is also known as non-cash distribution of
dividend. The motto behind stock split is to increase trading of the shares in the market
(Baker, 2009)
For example, the face value of per share is $100 and the total outstanding shares are
100 million. If the management of the company announces stock split in ratio of 1:2, the total
outstanding shares will be increased by 100 million, thus the new total number of the share
will be 200 million. On the other hand, the face value of the share will reduce by 50%. So the
new face value of the share will be $50. Due to effect of stock split, the holding share of the
investor will also increase in the prorate basis. If the investor has 10 shares, now he will have
20 shares. It is important thing that the total issued capital will not be changed. The
The reverse stock split is just opposite of stock split. In this process, the management
reduces the number of outstanding shares. The company increase face value of the share. In
this method corporation decides a ratio such as 2:1. Thus the company accumulates two
shares in one share. In this method, the total market value of company does not change. Due
to reverse stock split, the earning per share and face value of per share rises. Thus the reverse
stock split provides just opposite result from stock split. It is important question, why
company selects this method. When the management seems that the face value of the share is
less as compared to competitors then the company goes for this method to make its share
value to equal to competitors shares face value. It is also a sound strategy to increase
treading of shares. If the face value of share is too cheap in comparison to competitors, the
investors will be discouraged for investment. For increasing the confidence of investors, the
For example, an investor holds 100 shares of XYZ Company and the face value per
share is $50. If the management go for reverse stock split option and declares one share for
10 shares then the holding of the individual will reduce 9 shares for every 10 shares. Thus the
new holding of the investor will be 10 (100/10) shares but the face value per share will be
$500. It is also important that the total market capitalization will remain as same as before
reverse split. The example of the reverse split is take form below mentioned link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May 31, 2010, from
http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.htm
Mladjenovic, P. (2009). Stock Investing for Dummies. Dummies.
--------------------------------------------
The net income of Kodak has decreased a bit; it appears that the company is
more profitable. By conducting a side by side analysis from 2004 to 2003 the
company has increased in current assets and decreased in total assets. It
appears that the company went down in property, plant and equipment net as
well as discontinued operations. So, despite the decrease in total assets it looks
like the company has made a good decision.
The company has also decreased its total liabilities by about 4%. I believe this to
be good because the short term borrowings and long term debt has decreased.
To me, this means that the company is tightening their belt and paying off old
debt.
Total shareholders equity has down a little bit in dollars, but on the percentage
level the companys percentage has gone up. I believe this is because the
company issued $104k more shares in 2004 than in 2003. The company has the
same amount of shares outstanding in 2004 that it did in 2003 as well. Retained
earnings on the stock have gone up in 2004 as well. I believe this is contributed
by the more shares that have been issued.
I believe the profitability of the company is under good standings. They appear to
be making the necessary adjustments in the company to stay with in a profitable
income.
--------------------------------------------
corporation. The cash flow statement states from where cash has come and
where cash has been gone. Thus the cash flow statement makes a relationship
between beginning balance and ending balance of cash. The cash flow statement
is prepaid on the basis of income statement and balance sheet of the company.
The Little Bit Incs beginning cash balance including marketable securities was
$24000. On the other hand, the ending cash balance including marketable
securities of the company was $40000 (Weygandt, Kimmel & Kieso, 2009).
The net income of the company was $5500 during 2009. The company
generated cash inflow from operating activity is less as compared cash out flow
from operating activities. The company generated $9000 negative cash balance
in operating activity section of the cash flow statement. On the other hand, in
the investment section, the firm has also negative cash balance. The firm has
$7000 negative balance in investment section of the cash flow statement. The
Little Bit Inc made investment during the year instead of selling of assets. Last
section of the cash flow statement is financing activity section. In which, all
finance related activities come. The corporation sold some shares and borrowed
some money from outside lenders therefore the company has positive case
Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial Accounting: Tools for
--------------------------------------------
In what ways does the statement of cash flows relate to the balance sheet
and income statement?
It is important to understand what we are doing with the numbers and the results
these numbers give us because the result is the information that will be available to
us from financial statements. Although some want to see the income statement and
ignore the other statements we need to use them together to see the total picture of
what is happening to our business. The relationship between the numbers on the
financial statements shows us everything we need to know about the business.
The income statement shows income and expenses for a period of time and if we
are making or loosing money. The balance sheet compares the assets to liabilities
and shows how much money the business would have if everything is sold today.
The statement of cash flow might be the most critical statement because there is
plenty of information we can gain form it. This statement relates with the income
statement on operating activities to see if they are generating cash or not. It is
related to the balance sheet on how much cash is used in investing activities. In
relationship with the balance sheet the cash flow statement shows what cash is
provided or used by financing activities. It will tell us how much debt has been
paid and will indicated if we are using more debt or have paid down the credit line.
When the business makes a sale or receives payment for a sale on credit that is an
inflow. A sale shows up as income on the profit and loss statement and as an inflow
on the cash flow statement. It also shows up either as cash or accounts receivable
on the balance sheet. Also, how quickly we can collect on accounts receivable will
play a big role in the cash flow. When the business spends money, it shows up as
an expense in the profit and loss statement and as an outflow on the cash flow
statement. It also shows up on the balance sheet as a decrease in cash, or an
increase or decrease in liabilities, depending on what the expense represents.
Response 2
In what ways does the statement of cash flows relate to the balance sheet and income statement?
The cash flow statement relates to the income statement and balance sheet. The net income
from the income statement is listed on the statement of cash flows. Operating activities are
analyzed on the statement of cash flows; this section of the statement reconciles the net
income to the actual cash the company received from or used during operations. The second
section of the statement of cash Flows is the cash flow from investing activities which
include purchase or sale of assets. The last section in the Statement of Cash Flows is the cash
flows from financing activities that includes raising cash by selling stocks/bonds or
borrowing from backs; or cash out flows from paying back loans. The balance sheet shows
the different account balances at the end of the accounting period. The statement of cash
flows reflects changes in the accounts listed on the balance sheet between accounting periods.
The net cash from operating, financing, and investing activities are added up to calculate the net
change in cash.
Week 5 DQ 2
Due Thursday, Day 4
Response 2
Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a
statement of cash flows, what section might interest you most? Why? Discuss the circumstances in
which other sections of the statement might be important to an investor.
The statement of cash flow is utilized by investors because it has all information integrated
from the balance sheet and the income statement. The statement of cash flow is used by an
investor to see if the operating activities are greater than the net income to have earnings that
are called high quality. If operating activities are less, then a red flag will be raised as to
why the net income is not becoming cash. Another reason would be investors believe cash is
the best. The statement shows all cash coming and going from the business. If the company
generates additional cash than what is being used, then the company can reduce their debt,
acquire another business, or buy some of the stock back. The last reason why would be that
financial models are based upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows the section that might interest me the
most would be the operating activities. I would like to know how the company was doing and
what areas need to be improved to have more cash generated in the business. All the sections
are important to an investor so they can see the complete big picture of their investment.
--------------------------------------------
Candela Corporation
Candela Corporation
Candela Corporation and Subsidiaries have been working for over 34 years
developing and commercialize aesthetic laser systems that allow physicians and
such as removal of spider veins, scars, stretch marks, warts, as well as hair
removal and age spots, freckles and tattoos. Other skin treatments such as
psoriasis and acne and acne scars are also treated. (Axia College, 2007)
Consolidated Statement of Cash Flows; for the operating activities, 2002 shows
an alarming loss in the net income while 2003 and 2004 for the company are
showing a significant and steady climb in the net income. In 2004 there was a
new category added called Provision for the disposal of discontinued operations
and the category has caused an increased the account for 2004. Loss from
discontinued operations grew from 2002 to 2003 but had a significant decline for
2004. Depreciation has increased over the last 3 years as well. Provision for bad
revenue increases. The provision for deferred taxes shows the company went
from a loss in 2002 and 2003 to show there was no tax loss in 2004. The tax
benefit from exercised stock options has practically doubled sense 2003. The
changes in assets and liabilities for the last 3 years have been up and down.
increased. Other current assets, other assets have also increased. Accounts
payable has made a significant decrease in the last 3 years as well as accrued
payroll expenses. The accrued payroll decreasing could mean that the amount of
employees over the years has decreased as well. The accrued warranty costs
have increased as well; this could mean that the company renewed equipment
warranties. The net cash provided by operating activities looks to have gone
from a loss in 2002 to a large profit in 2003 and then a decrease, yet still a profit
for 2004. It appears on the operations level that management needs to do more
to regulate the companys finances so there is not an up and down variance each
year.
The cash flow from investing activities shows me that in the last three years
they had large amount of investments in 2002 and 2003 but now they are letting
them decrease.
The cash flow from financing activities states that the proceeds from issuance
of common stock have increased significantly from 2002 to 2003 and rose a little
more in 2004. The repurchases of stock has not happened sense 2002 and the
principle payment of long-term debt grew in 2003 from 2002 and shows no
activity for 2004. Same goes for the net borrowing on line of credit; it appears
that Candela Corporation is current on payments to line of credit. So, the net
cash from financial activities looks great for 2004. The cash and cash equivalents
Corporation, I believe the company is making a profit, but perhaps need some
Reference
Axia College. (2007). Statement of Cash Flows. Retrieved June 14, 2010 from Axia
--------------------------------------------
(a) Create a table to compare the dollars provided or used by operating, investing, and financing
activities, as well as the overall increase or decrease in cash.
HARELY
STARBUCKS DAVIDSON RITE AID
2008 2008 2008
(b) Create a second table for each company comparing this same information for each of the three
years presented in that companys statement of cash flows. Include an additional column that looks at
the combined cash flows for all three years.
STARBUCKS
HARLEY DAVIDSON
RITE AID
Starbucks operating cash flow has gone up in 2007 and decreased a little in 2008. The net change in cash for Starbu
from the previous year. This could mean that this year there can be a gain.
Harley Davidson's operating cash flow has significantly decreased from 2007. It appears the company was on an u
supplied for net income. With the economy the way it is and not many people buying at this point could have an e
positive gain.
Rite Aid's operating cash flow has taken a significant decrease as well from previous years. Although, after taking
years. Rite Aids net gain in cash could be from the ever growing needs in medical supplies. This also could reflec
--------------------------------------------
position under IFRS often differ from a balance sheet presented under
ACC 230
Findwhat.com has recorded the 135 percent increase in the revenue which is mainly
due to the business acquired of Espotting during the year. The different accounting policies
are present for the acquiring firm and the acquired firm. The company has recorded certain
premature revenues for the amount which advertisers had made only the advance deposit. As
result, the company is recognizing the vendor financing as revenue. In some places, the gross
revenue has been recognized while in another, the net revenue has been recognized. The
network click revenue is recognized at gross level while the private level revenue is taken at
net level. Some of the revenue expenditures have been recognized as the capital expenditures.
Revenue for set up network fee is treated as deferred revenue and is recognized over
a period of time. The company is very inconsistent with regards to its accounting policies in
terms of recognition of revenue. The provision and treatment of amount for doubtful debt is
also not satisfactory. When a customer clicks on a sponsored advertisement, the whole of the
revenue due to him is recognized. The company is having a very high amount of doubtful
debt balance at the end of the year ending December 31, 2004.
--------------------------------------------
Response 2
Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you read your classmates responses,
consider the following scenario: If you compared two different companies that utilized two different
valuation methods, how might the quality of the results differ? Also, comment on the difficulty of
making comparisons between two firms that use different valuation methods.
Week 7 DQ 2
Due Thursday, Day 4
I think that the significance is that the analysts only see this one
HUGE transaction. The events that actually led up to this large
transaction actually took place over a 2 year period. These items
should have been written off as they occurred. Wall Street would
not have known that the executives refused to write off these
accounts when they should have. Wall Street only see's the one
large transaction. If the company would have been more honest
in their reporting they would have seen (more than likely) that
there were many accounts over a two year period that should
have been written off at different periods. So the analysts would
not have seen a pattern of recurring write-offs. If the analysts
only see the one transaction they are less likely to be able to
paint an accurate picture of the financial standing of the business
for investors, or potential investors. If the investors could see
that there were many accounts that had to be written off maybe
their investing decisions would have been different. The
regulation of the accounting field has grown by leaps and bounds
since the Enron scandal. The government has implemented
several agencies and regulations to ensure honesty in accounting
practices. SOX is one example of an agency that has been put into
place to ensure honesty in accounting. SOX implements things
like internal controls, and accountability for CEO's and CFO's.
Response 2
I believe the impact and importance of this write-off event is a
very big matter. It is obvious how they handled it that it was a
scandal from the start. I think that everyone involved had a big
role in how things played out. To me I think of the investors as a
really big hit to this but also feel that audit committees have to be
held responsible as well. It has been shown over many examples
that adit oversights are happening to financial reporting.
Although I do feel they are getting better and tighter due to
conforming tightly with the GAAP requests. I feel over time the
accounts receivable should have been written off in smaller
increments and not all taken by $405 million at once. Maybe that
isn't correct but it would have been easier I would think to take
the receivables over time.
Response 3
Wall Street should have read the footnotes and seen that the write off was for
accounts receivables and should have been reported in the allowance for doubtful
accounts. Every company that allow sales on credit face doubtful accounts;
therefore, the write off may reoccur. The significance of this transaction is that
WorldCom want to cover up the $405 million dollars that it was unable to collect from
its customers, but WorldCom wrote off a large sum of money rather recording the
write-off as needed and the analyst over looked it. Depending on how the company
policy is for writing off accounts, from 1998 to the 3rd quarter in 2000 is 11 quarters.
If the company wrote off bad accounts quarterly it should have wrote off
36,818,181.82 per quarter. Investors would not want to continue to invest into a
company that has poor collection skills, or poor management. Unusual items are
simply for those items that are not recurring operating expenses. Bad debts do not
fall under this category. Since the Enron and WorldCom scandals many rules and
regulations have been put in place by the government such as SOX. More people are
being held accountable for their actions and consequences follow poor quality
reporting such as fudging the books.
--------------------------------------------
Debt Scenario would increase the debt ratios from to 50%. Equity Scenario
would reduce the debt ratio to 40%. With Debt option, earnings per share would
be higher. Interest declines to 2.86 times with the Debt option while times
interest earned increases to 3.75 times with the Equity option. Either option
exhibits a good use of financial leverage because for both, the financial leverage
index being greater than 1. However, it is higher using the Debt option.
--------------------------------------------
In this case I think the company has achieved success with a net profit of $174k.
If the company were unable to be profitable, the company would eventually go
out of business. We would be able to tell if the company was not profitable by
looking at each section individually. The cost of goods sold is what stands out for
me. If we pay more to make the product then we are actually selling it for, there
is no profit to be made. So, I think it should all start there.
--------------------------------------------
Presenting to Stakeholders
Axia College of University of Phoenix
Presenting to Stakeholders
Financial statements provide insight into the companys current status
and lead to the development of policies and strategies for the future (Axia,
2007). Financial statements and notes to the financial statements should be used
to analyze the company. For instance, what do the financial statements reveal
about why the company has requested a loan or purchased items on credit?
What is the firms capital structure and what does the firm have outstanding?
How well can the company pay back debt? What recourses are used to pay debt?
What is the companys performance record and are there any future expansions?
What are the expected returns and how successful is the company compared to
success, and what are the strengths and weaknesses of the company? What
Liquid ratios measure a firms ability to meet cash needs as they arise. The
current ratio is a good tool to use because it measures the ability the firm has to
pay debts when due. The current ratio for REC is at 2.4 times for 2007, although
it is down from 2006 the company is still able to pay current debt when due.
Cash flow ratio considers cash flow from operating activities has increased from
collection period has gone down 5 days within the last year. The cash conversion
cycle gives in-site on why the cash flow has improved or decreased, in this case
Activity ratios measure the liquidity of specific assets and the efficiency of
managing assets. Accounts payable turnover is up seven times from the prior
year and inventory turnover is also up .25 from last year. Accounts payable
turnover is down 9.05 from 12.10 in 2006. This means that the company is
taking longer to repay payables. The fixed asset turnover and total asset
turnover ratios are used to assess managements skills in generating sales from
investments in assets. The fixed asset turnover has dropped slightly, but the
total asset turnover has risen slightly. The increase in total asset turnover comes
relative to equity and its ability to cover interest and other fixed charges (Axia,
2007). Debt ratio, long-term debt to total capitalization and dept to equity have
all raised slightly implying a slightly riskier capital structure. The times interest
earned and the cash interest coverage have increased since 2006. The interest
payments can be covered 7.4 times this year. The cash interest has improved
due to the operating profits and cash from operations. The fixed coverage ratio is
also important in cases where companies use operating leases. In this case, the
and its efficiency in managing assets, liabilities, and equity. The ratios used are
the gross profit margin, operating profit margin and net profit margin. All of
which have improved for REC. As well as the cash flow margin, return on total
assets, return on equity and cash return on assets. Over all the company seems
Reference
Axia College. (2007). The Analysis of Financial Statements. Retrieved June 28,
2010,
from Axia College, Week Eight, ACC 230.