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How Financial Ratios conducted
Ratio analysis of financial statements paper
How Financial Ratios conducted
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This paper will discuss the information found in the financial statements such as, balance sheet, income statement, statement of cash flows, and statement of stockholders’ equity. The financial statements will show the relation to planning, controlling, and decision making. Also, the paper will discuss some the reports and ratios that can be developed by analyzing the statements. The statements mostly used by managerial accounting are: budgets, forecast, variance reports, and ratios to name a few.
Planning, Controlling, Decision Making
We should begin by planning, controlling and decision making. Planning includes setting objectives and determining how to accomplish them. Controlling includes gathering feedback to guarantee that the arrangement is, no doubt legitimately executed. Decision making includes selecting a course of action from contending choices (Garrison, 2012).
Balance sheet, Income statement, statement of cash flows, and statement of stockholders’ equity
The balance sheet is one of the major financial statements used by accountants and business owners. The balance sheet displays an organization's fiscal position at the finish of a specified date. Some depict the asset report as a "preview" of the organization's budgetary position at a focus a minute or a moment in time. The income statement is imperative since it demonstrates the benefit of an organization throughout the time interim specified. The period of time that the statement spreads is picked by the business and will differ. The statement of cash flows reports the sources and uses of cash by operating activities, investing activities, financing activities, and certain supplemental information for the period specified. The statement of stockholders’ equity sho...
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...meaning of far reaching examples and issues as time goes on. Deliberately deciphered in the correct connection, recognizing there are numerous other imperative variables and markers included in evaluating execution (Demonstratingvalue, 2013).
Conclusion
In conclusion, using financial statements in managerial accounting helps with the planning, controlling, and decision making process of a company. The information from the financial statements are used to analyze and establish budgets, forecast, variance reports, and ratios relating to the stability of the company. Managerial accounting data gives information driven info to these decision which can enhance decision making over the long haul. Business directors can influence this influential device to help make their business greater by seeing how managerial accounting profits regular business decision connections...
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
The statement of cash flows indicates the influences affecting the firm’s cash account over time. (Melicher 375) A statement of cash flows provides summary of the cash inflows (sources) and cash outflows (uses) during a specified accounting period. The statement consists of three sections: operating activities, investing activities, and financing activities. (Melicher 361)
Although the balance is useful, it has its limitations. The primary limitation of the balance sheet is that it does not reflect the current value or worth of a company. In essence the importance of the balance is that it provides the financial position of a company on a particular date. It helps external users assess the financial relationship between assets, liabilities, and the owner’s equity. Assets and liabilities are usually classified as either current or long term and presented in descending order of liquidity. (W. Steve Albrecht, 2002)
Balance sheets provide detailed information about assets, liabilities, and shareholder’s equity of a company. Assets are everything that a company owns that have worth-physical property, trademarks, patents, cash and investments. Liability is everything that the company owes, like rent, loans, money owed to suppliers, payroll, or taxes. Shareholder’s equity is the capital or net worth, or the money left over after the sale of all assets and the payment of all debts.
There are different aspects when working with financial statements. There are different financial statements within accounting. The balance sheet provides the overall picture for an organization, the income statement provides the list of revenue and expenses, the retained earnings statement appears on the balance sheet and income statement and the cash flow provides an indication on how much cash enters and leave an organization. The following paper will go further into the depths of accounting to explore the revenue recognition principle and expense recognition principal, along with the different types of revenues and expenses.
The nature of work of accountants and auditors is to prepare, analyze, and verify financial reports and taxes, and monitor information systems that furnish this information to managers in business, industry, and government. The major fields of accounting are Public accountants who have their own business or work for public accounting firms. They perform a large range of responsibilities such as doing taxes, numerous accounting and auditing, consulting activities for their clients, who may be corporations, governments, nonprofit organizations, or individuals. Management accountants also called industrial, corporate, or private accountants record and analyze the financial information of the companies for which they work with. Other responsibilities include budgeting, cost management, and asset management. These accountants analyze and interpret the financial information corporate executives use to make sound business decisions. Internal auditors are very important to our system. When companies make information more timely, top management base their decisions on actual data, rather than their personal opinion. So these auditors verify the accuracy of their organization’s records and check for mismanagement, waste or fraud. Government accountants maintain and examine the records of government agencies, and audit private business and individuals whose activities are subject to government regulations or taxation. All ranks of government accounting sees that revenues are received and expenditures are made in accordance to laws and regulations. Many who have a background in accounting work for the federal government as Internal Revenue Service Agents. Within each field, accountants often concentrate on one aspect of accounting. Jonda Dunn who I interviewed works for B. Lee Hubbard and Company in Jackson, Ohio. She has worked there for six years and enjoys her job. She has received a bachelor’s degree in accounting and minored in Computer Science. She chose this career because she loves math and numbers. Mrs. Dunn deals with payrolls, bank reconciliation’s, and financial statements.
“A balance sheet is a financial statement that summarizes a company 's assets, liabilities and shareholders ' equity at a specific point in time. These three balance sheet segments give investors
A balance sheet can be given at any point in time but only shows a particular date. There are two other names for a balance sheet, statement of condition or statement of financial position. The main characteristic of for the balance sheet is that it assesses liquidity. Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset 's price (Investopedia.com). In order to fully understand a balance sheet you must first understand the relationship of every account and the financial statements simultaneously. The balance sheet informs us that asset equals liabilities plus stockholders’ equity. Assets are items possessing service or use potential to owner (Fraser & Ormiston, 2012). Liabilities are lawful dues or obligations that organizations have while doing business. Stockholder’s equity is represents the capital obtained from investors in order to receive stock. There are two main sources that stockholders’ equity comes from and that is money and retained earnings that was accumulated over time
As we already know, financial statement is the most important aspect that every company should have as a reference for any decision making in term of loan, project, operation and other related matters. Because management of any business requires a flow of information to make informed, intelligent decisions affecting the success or failure of its operations. Investors need statements to analyze investment potential Banks require financial statements to decide whether or not to loan money, and many companies need statements to ascertain the risk involved in doing business with their customers and suppliers. Because of these reasons, it is essential to have comparability and consistency on financial statement for decision making process then lead company to perform well in their business and boost the profitability as well.
The income statement summarizes all the income made as well as expenses paid during any given period. By observing the difference between your income and expenditures you are able to determine if a net profit has been made or a net loss has been incurred. The cash flow statement breaks down the incoming and outgoing flow of cash, summarizes its uses, and is categorized as either an operating, investing, or financing activity. These categories differ in the fact that operating activities are recurring, but investing and financing activities are not as frequent. The balance sheet catalogs your assets, liabilities, and equity.
The statement of the financial position is also known as balance sheet has shown the accounting equation, Assests = Liabilities + Equity. The statement of the financial position shows the current assets, liabilities and equity owned by a business during an accounting period.
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."[Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance.
Balance sheet is a financial statement which is widely used by accountants for businesses. Balance sheet is also known as the statement of financial position because it helps us to present company’s financial position at the end of a specified period. (fresh books, 2016)
The various tools of financial statement are used for decision-making process. The financial statement becomes a tool for future planning and forecasting. The analysis of these statements involves their division according to similar groups and arranged in desired form. The interpretation involves the explanation of financial facts in a simplifiers manner.
Today, it is evident that management accounting practice is indeed and is seen as an important material that every company and firm needs to implement. Although the perspective and the practices of management accounting vary from one country to another, it does not change the significance of management accounting. Needless to say, without management accounting, there will not be any logical decision made for long term plans regardless of which approach, whether it is through the new method or traditional method.