CHAPTER-I FINANCIAL STATEMENTS LEARNING OBJECTIVES After studying this chapter, you will be able to: • Explain the meaning of financial statements of a company; • Describe the form and content of balance sheet of a company; • Prepare the Balance Sheet of a company as per Schedule VI Part I of the Companies Act Explore a big database【WITH NO SIGN UP】– % FREE Financial Statement Essay Examples All popular types of essays Argumentative, Persuasive, Analysis & Research Papers May 19, · One of the most common means of analyzing statements is to examine the trends in the statements, and to conduct analysis by a set of ratios that will explain about the liquidity, solvency, efficiency and returns for the company (Investopedia, ). This report will contain a financial statement analysis of Starbucks. Trends. Starbucks has demonstrated progressive revenue growth.
Essay about Financial Statements - Words | Bartleby
In this business world of increased competition, quality of financial information provided by companies is considered to be the most important element in process of decision making. This financial information of companies can be gained through accounting information systems and more than all from financial statements Kraft, It is important to have real and accurate information presented through financial statements as it is one of the significant assumptions in case of decision making.
Accountants and finance managers are considered to be communicators present within the firm. Accountancy is the art to communicate financial information related to a business corporate to users like shareholders and managers.
This communication is financial statement essays through financial statements in which economic resources of company are depicted under the management control. The art lies in selection of information that is useful for the user and that has high level of reliability. There is a need of periodic financial information of company by shareholders. This information assists them in evaluating the performance of one company by comparing it with other companies Juárez, Nowadays, organisations are not needed to publish forecasted financial statements on regular basis and due to this reason shareholders use past financial statements to make predictions Dyson, This essay is related to the critical analysis of financial statements that are used by shareholders for making necessary decisions.
This essay contains analysis of important elements of financial statements, processes used by companies to complete financial statements, areas of subjectivity in financial statements, financial statement essays, analysis of international accounting standards regarding rules of comparability of statements and critical analysis for the use of ratio analysis for comparing financial statements of companies.
In the process of decision making, financial as well as non-financial information is required. The most significant financial information required in the decision making process is gained through financial statements of company. Accounting is considered to be service function to management as it provides financial information of the company.
It helps in processing, gathering, studying raw data and converting that in to appropriate information in decision making process. The basic features of accounting are to gather, process and present financial information on the basis of business of company. There are different stages involved in the process of accounting through which financial statements are developed, financial statement essays.
The process of accounting involves conversion of input data in to output information Johnson and Weggenmann, First of all, all financial data related to business of company is collected. After collection of data, analysis of business events is done and then data is recorded in journal and general ledger accounts. In the end of accounting period, before preparation of financial statements, accuracy of data is checked in the books financial statement essays help in preparing financial statements.
It depicts the recapitulation of ledge accounts and all financial transactions. After coordination of all records and finding accuracy of data, financial statements are prepared. It is to be ensured by accountants of company that interests of users have to be satisfied through financial statements De Franco, Kothari and Verdi, Figure 1 shows the accounting process of a company in which the final product is financial statements, financial statement essays.
The whole process of accounting is followed by accountants in order to prepare financial statements. These help the investors to make necessary decisions related to investment. According to Kim et al the most fundamental financial statement is balance sheet through which financial position of company is represented and it is considered to financial statement essays a basis to estimate security of business.
In addition to the security of business, it is very important to focus on efficiency of business. Efficiency is defined as a capability of business to achieve particular goals. The profitability of business is considered to be most stated objective of a company. In this respect, financial statement essays is evaluated through profit and loss account.
The performance of company for a specific period of time is represented through income statement. The basic components of income statement are revenues, expenses and profit or loss is calculated through their difference.
It is not compulsory that only financial statement essays profit and loss account, profitability of business can be measured. There is a possibility of having issues while using this account. In cash flow statement information related to cash receipts and expenditures is included, financial statement essays. For improving the utilisation of financial information for comparing performances of companies, there is a need of analysing financial statements of companies.
The analysis of financial statements is a process that involves conversion of data from financial statements into some financial statement essays information for the company Francis et al, This is done through different analytical tools and techniques.
Therefore, for knowing the recent level of quality of business as compared to its competitors, comparison of financial statements by analysing them is important. The process of analysing financial statement comes before the process of management and planning. In effective financial planning, financial statement essays, strengths and weaknesses of company have to be evaluated. By comparing financial statements of companies, good aspects as well as weaknesses of companies can be recognised Horton et al, Ahmed et al stated that one of the important requirements of preparing financial statements is presentation of financial statements as these documents are considered to be main tool of getting information related to the situation of companies.
These subjects can have dependability on periodicity of financial statements. In this periodicity, interruption of regular flow of business management is required for assessing both income and capital, financial statement essays. As a result of above mentioned discontinuity, a relationship is developed in between figure to be assessed and subject used to carry out that assessment due financial statement essays subjective values.
This is due to the reason that due to these values, a process of abstraction and forecasts is implied. In case of subjectivity, abstraction process is made compulsory due to the need of ignoring links between space and time that characterise the situation depicted in the financial statements. With respect to space dimension, the requirement of abstraction is made compulsory due to the unitary aspect of activities involved in management.
There is different nature of these relations, like commonality, integration and so on, financial statement essays. A modification in the situation depicted in the financial statements has to be entailed due to their intensity.
The unitary feature discussed above needs a subjective allocation of figures between various items to be evaluated in financial statements. For example; calculating cost of inventories and subjective assignment of general cost. As a result, abstraction process is financial statement essays by balance sheet through which one process can be evaluated Cascino and Gassen, In case of above mentioned cases, financial statements are required to be subjective to a certain extent of indefiniteness, whether they are dependent on interruption of linkages through which processes are linked or relations are broken down.
Due to this indefiniteness, rational impossibility is translated in to attribute at the time of evaluating quantitative elements of a process Barth, Due to this indefiniteness, problem of subjectivity arises in financial statements.
Moreover, it is important to do forecast because there is a need of adopting a perspective view in preparation of financial statements for investigating the future potentials of company. This occurs due to the financial statement essays that value assigned to continuous process is used for translating the requirement financial statement essays anticipating future events that has a direct or indirect impact on business Financial statement essays and Nikolaev, It has been stated by Carraher and Van Auken in financial statements, financial statement essays, the main root of the subjectivity is uncertainty.
As, the foundation of subjectivity are the given factors uncertainty and indefiniteness paving the path for judgement of preparers of financial statements; on contrary to this; reliability can financial statement essays termed as consistency in between fact and the representation of that fact, on the other hand the objective of representation is to reproduce fact for objectives of information.
For the current objective, a fact can be termed as the dynamics which are linked with the management of business, while the depiction of this fact is the financial statements which targets to provide pictures of this dynamic for satisfying the given informative objectives.
Therefore, the limit of reliability can be termed financial statement essays the expression of consistency degree between the given factors of comparison: the dynamics linked with the management of business and figures present in the financial statement.
Such consistence degree might be the by-product of components which are not linked with the subjectivity of figures Weil et al, Kim et al stated in literature of accounting, comparison of financial statement is the major topic of research.
Different articles include discussion of how to do the measurement of comparability of financial statement and how to describe them. IASB also suffers from difficulty in explaining the comparability of financial statements. For acquiring comparable financial statements among different organizations, financial statement essays, different debates are done for checking that whether uniformity, financial statement essays, harmony or flexibility is the ideal process.
In measurement approaches these debates are depicted, which are developed in order to evaluate that how come financial statements are sponsor of flexibility and uniformity. In accordance with the framework of IASB, the major qualitative approaches are comparability which let the information to exist in the financial statements which in turn provides value to the users.
IASB stated in the framework that user should do the comparison of the financial statements of individual with the passage of time for recognizing style in financial position and performance. Users should also do the comparison of financial statements of different organizations for determining the performance, alterations and financial position.
The research is related to the comparability of financial statements Siregar et al, However, Boards concluded that in draft of joint revelation they are supposed to give up financial statement essays comparability for acquiring increased faithful of description through standards to recent standards or comparability to financial statement essays increased faithful.
Therefore; through termination of platform, amendments are made on stable bass through IFRS and different new standards and acknowledgements are published. These alterations based on consistency endanger the comparability while participants see such comparability as most important factor. It has been seen that IASB also emphasizes over the comparability of financial of scheduled organization.
Therefore, such comparability seems to be less important when compared to the comparability of financial statements of those organizations that run with similar industry Chen et al, Along with it; IASB is always trying hard to evade requirements which stress over kinds of methods of transaction.
It is recommended by the study that owning similar standards of accounting are not enough able to acquire comparable financial statements. If accountants are given with the set of transactions through which they are needed to develop financial statements, they will be not be capable of making similar statements, even after implementation of IFRS.
According to Chen and Li the standards of constant accounting can make improvement in the comparability.
It actually does not happen. Organization in different countries and regions own their own objectives of reporting, various approach to do business, and own their economic factors and political factors.
Over the past few years, analysts and investors financial statement essays made different tools of analysis, techniques and concepts for comparison of weaknesses and strengths of organizations.
These techniques, concepts and tools develop the foundation important analysis. Ratio analysis can be termed as the tool that was designed for performing quantitative analysis on financial statement essays present in the financial statements. Ratios assist in linking three of the financial statements with one another and provide figures that can be compared with other organizations, sectors and industries.
Ratio analysis is the most widely used important technique of analysis, financial statement essays. However, financial ratios are different for different sectors and industries and comparisons between different kinds of organizations are not valid. Along with it, it is significant to do the analysis of trends present in organization ratios Dhole et al, financial statement essays, According to Cascino and Gassen ratio is relative or rational number which implies that one economic value is linked with the other economic value.
As there is no sense in linking two types of economic values, therefore accuracy of ratio can be discussed. The division of financial ratio can be done into two groups by considering the time dimension. One group involves the business of organization in the specific time period generally a year. This group is dependent over the data from loss and profit account and statement of cash flow.
5 Minute Finance Lesson: Financial Statement Basics
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Essay about Financial Statements. Words10 Pages. Financial Statements basically show the historical performance or record of the company at some previous point of time. By the time when financial statements are made public, changes are many economical areas such as market conditions, currency exchange rate and inflations can change the values of assets and liabilities This essay contains analysis of important elements of financial statements, processes used by companies to complete financial statements, areas of subjectivity in financial statements, analysis of international accounting standards regarding rules of comparability of statements and critical analysis for the use of ratio analysis for comparing financial statements of companies CHAPTER-I FINANCIAL STATEMENTS LEARNING OBJECTIVES After studying this chapter, you will be able to: • Explain the meaning of financial statements of a company; • Describe the form and content of balance sheet of a company; • Prepare the Balance Sheet of a company as per Schedule VI Part I of the Companies Act
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