The Five Characteristics Of Useful Financial Statements Accounting Essay

1.0 Introduction

Accounting Users is divided to two, which is internal users ( people within the organisation ) and external users ( people outside the organisation ) .Internal users is including Directors of operations and Management.Next, external users is including investors, clients, employees, creditors, authorities organisation, and providers. Example of determination by internal users is to analyse profitableness by merchandise and operating unit. The research show in accounting survey online is accessed by to analyse the profitableness by merchandises and operational units ( Anon, neodymium ) . Examples of determination by external users is to hold a gross revenues or purchase minutess with entities.

The research show in accounting survey online is accessed by to hold gross revenues or purchase minutess with the entity ( Anon, neodymium ) .

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Five different users for Continental Limited Financial Statements are Managers of the company, Employees of the company, Shareholders or proprietors of the company, providers or creditors, client or debitors. Next, the five regulative features of fiscal statements is relevancy, comparison, comprehensibility, truth, dependability.

Undertaking 2 until undertaking 3 is to demo the workings about the income statements and balance sheet.

2.0 Five different users and their demands for Continental Limited fiscal statements

Five different users for Continental Limited Financial Statements are Managers of the company, Employees of the company, Shareholders or proprietors of the company, providers or creditors, client or debitors. It will demo in 2.1 until 2.1.4.

2.1 Directors of the Comapany

Directors of the company, the proprietor of the company, these people are appointed to oversee the day-to-day activities of the company. Maintain control of the manner organisations do things, while taking, actuating and steering people. They need to cognize the fiscal status of the company ‘s accounting information, as it is now and expected in the hereafter, so that they can efficaciously pull off the concern, and to take effectual control and planning determinations.

2.1.1 Employees of the Company

Employees of the company, these people are employed by the company conducts its concern activities. They need accounting information on the fiscal place of the company, because their future calling, their rewards, the size of the salary income depends on it.

2.1.2Shareholders or proprietor of the Company

Stockholders or proprietor of the company, as a successful corporate stockholders, the company ‘s foreman or spouse can be an enviable place. They need accounting information to measure how the company ‘s direction to efficaciously execute its direction maps, how the profitableness of the operation and direction of the company ‘s operations and net income, they may retreat into payment from the concern.

2.1.3 Suppliers or Creditors

Suppliers or creditors, a creditor of a legal nature, the proviso of goods, services or capital loan debitor entity, a company or a individual. They need the company ‘s ability to refund its debt, in order to guarantee that they collect from the company ‘s accounting information.

2.1.4 Customers or Debtors

Customers or debitors, these are the people to purchase the services or goods of the company recognition. They need the company ‘s ability to refund its debt, in order to guarantee that they collect from the company ‘s accounting information.

2.1.5 Five Features of utile fiscal statements

The five regulative features of fiscal statements is relevancy, comparison, comprehensibility, truth, dependability. It will demo in 2.1.6 until 2.1.10.

2.1.6 Relevance

Relevance. Relevance means that the fiscal statements should be a major concern companies. Relevance to act upon a decision-making capacity of the undertaking. The fiscal information contained in the fiscal statements, should hold an impact on the commercial endeavor operating policy and decision-making.

2.1.7 Comparison

Comparability. Comparable entities, every bit good as the fiscal statements of each entity should be comparable. Fiscal histories on the footing of accounting constructs, should be the last twelvemonth history and comparable companies account. The fiscal statements must besides be in the fiscal statements of other entities in the same industry. Users must be able to compare the fiscal statements of an entity over clip to place tendencies in its fiscal place and public presentation. The Howtobeacapa online is accessed by Users must be able to compare the fiscal statement of an entity through clip in order to place tendencies in its fiscal place and public presentation ( Anon, 2012 ) .

2.1.8 Comprehensibility

Comprehensibility. Comprehensibility of the information contained in the fiscal statements is easy to understand its users. Is of import to observe that intelligibility is dependent on the user ‘s ability to analyse or read the fiscal statements. The user should hold the cognition and accomplishments to understand the information contained in the fiscal statements.

2.1.9 Dependability

Dependability refers to the grade of assurance informations user trueness and genuineness of the fiscal and accounting information. Dependability is impersonal, the belongingss of prejudice and mistake and complete fiscal information. Cautious or conservative construct, besides straight impact the dependability of fiscal information.

2.1.10 Accuracy

Accuracy. Financial accounts to supply accurate fiscal information to the user to make up one’s mind because of inaccurate information will take to inaccurate consequences generated by users.

2.2 The income statements of Continental limited for the internal usage

The workings of income statements will demo in 2.2.1.

2.2.1 Income statements of Continental limited for twelvemonth stoping 31 Dec 2010 for internal usage by company and managers and direction

Closing stock must be recorded at cost or net gross revenues value which one is lower. Since cost RM65000 & A ; lt ; net gross revenues value RM70000, the cost RM65000 should be shuting stock value put in the trading history of income statements and under the current assets in balance sheet.

In the below is the working of inquiry B:

___________________________Cash account__________________________________

RM RM

Gross saless ( Difference ) 5000 Purchase 4000

Stationery 700

Electricity 300

________ _________

5000___ 5000_

Gross saless in trading history of income statement= RM360000 from TB + RM5000= RM365000

Purchase in merchandising history of income statement= RM200000 from TB + RM4000= RM204000

Stationery as disbursal put in P/L history of income statement= RM 700

Electricity and H2O in P/L history of income statement= RM7000 from TB + RM300= RM7300

Working of inquiry degree Celsiuss:

Gross saless committee as disbursal put in P/L history of income statement= RM18000 paid from TB + RM1500 accrued at the terminal of the year= RM19500

Then, accrued gross revenues committee RM1500 is recorded under the current liability in balance sheet.

Office Salaries as disbursal put in P/L history of income statement= RM28000 paid from TB- RM2000 prepaid at the terminal of the year= RM26000

Then, prepaid office wage RM2000 is recorded under the current plus in balance sheet

Working of inquiry vitamin D:

____________________ Debtor account_________________________________

RM RM

Balance b/d 75000 Bad Debts 5000

Balance c/d 70000

________ _________

75000__ 75000

Balance b/d 7000

( Debtor put under current plus in balance sheet )

Bad debts account___________________________

RM RM

Debtor 5000 P/L history 5000

( Bad debts as disbursals put in P/L history )

Provision for bad debts shuting balance= 10 % X Debtor shuting balance RM70000= RM7000

__________________Provision for bad debts account____________________________

RM RM

31 Dec 2010 Closing balance c/d 7000 1 Jan 2010 Opening balance b/d 5000

Increase difference 2000

_______ ______

7000 7000

1 Jan 2011 Balance b/d 7000

Working of inquiry vitamin E and degree Fahrenheit:

Vehicles account__________________________________

RM RM

Balance b/d 300000 Vehicles disposal a/c 50000

Balance c/d 250000

________ ______

300000 300000

Balance b/d 250000

_________________Provision for depreciation on vehicle account__________________

RM RM

Vehicle disposal history 12500 1 Jan 2010 Opening Balance b/d 60000

( Cost sold RM50000 x 5 % ten 5 old ages Depreciation as disbursal put in P/L

from 1 Jan 2005 to 1 Jan 2010 ) history 12500

( Vehicles shuting balance

RM 250000 x 5 % )

31 Dec 2010 Balance c/d 60000 ______

72500 72500

1 Jan 2011 Balance b/d 60000

Vehicle disposal account____________________________

RM RM

Vehicle cost sold 50000 Provision for depreciation on

Vehicles sold 12500

Returns from disposal of

Vehicle 35000

Difference for loss on

Disposal of vehicle 2500

________ ______

50000 50000

Provision for depreciation on premises account_________________

RM RM

Balance c/d 54000 1 Jan 2010 Opening Balance b/d40000

Depreciation as disbursals put in

P/L history 14000

( Premises cost RM350000 x 4 % )

_________ ______

54000 54000

Balance b/d 54000

Working for note g of inquiry:

Taxation charge RM15300 is deducted from net net income at the underside of income statements. It is besides recorded as accumulated revenue enhancement RM15300 under the current liability in balance sheet.

Working for note H of inquiry:

Proposed divided to be deducted from net net income at the underside of income statement= 25 ten RM500000 portion capital from TB= RM10000

Then, the proposed divided RM10000 is recorded under current liability in balance sheet.

Income statements of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage

RM RM RM

Gross saless 365000

Less Return inward 10000

Net gross revenues 355000

Less Cost of gross revenues:

Opening stock 50000

+Purchase 204000

-Return outwards 15000

+Carriage inwards 5000 194000

Less Closing Stock 65000 179000

Gross Net income 176000

Add Income: _5000_

Devidend received 181000

Less Expenses:

Stationery 700

Office electricity and H2O 7300

Office salaries 26000

Gross saless committee 19500

Bad debts 5000

Addition in proviso for bad debts 2000

RM RM

Loss on disposal of vehicle 2500

Depreciation on vehicles 12500

Depreciation on premises 14000

Vehicle disbursals 12000

Interest charges 3000 104500

Net net income 76500

Less revenue enhancement charge ( 15300 )

Less Proposed dividend ( 10000 )

Net income for the twelvemonth 51200

Add Retained net incomes brought frontward 100000

Retained net incomes carried frontward 151200

2.2.2The balance sheet of Continental limited for the internal usage

The working will demo in 2.2.3.

2.2.3 Balance sheet of Continental limited for twelvemonth stoping 31 Dec 2010 for internal usage by company and managers and direction

Balance sheet of Continental Limited as at 31 Dec 2010 for internal usage

RM RM

Fixed assets/ Non-current assets

Office premises at cost 350000

( – ) Provision for depreciation on premises ( 154000 ) 296000

Vehicles at cost 250000

( – ) Provision for depreciation on vehicles ( 60000 ) 190000

100000

Long-run investing 586000

Current assets

Closing stock 65000

Debtors 70000

( – ) Provision for bad debts ( 70000 ) 63000

Bank 42000

Prepaid office wage 2000 172000

758000

Issued shared capital

Share capital 500000

Add Reserve

Retained net incomes carried frontward 151200

Shareholders & A ; acirc ; ˆ™ equity 651200

Add Long-run liabilities/Non-current liabilities

Loan 55000

Add Current liabilities

Creditors 25000

Accrued gross revenues committee 1500

Accrued revenue enhancement 15300

Proposed divided 10000 51800

758000

2.3 Income statements of Continental Limited for external coverage or publication

The working will demo in 3.1.1

2.3.1 Income statements of Continental Limited for twelvemonth stoping 31 Dec 2010 in the accepted for external coverage or publication.

Distribution costs Administrative disbursals

RM RM

Stationery 700

Office electricity and H2O 7300

Office salaries 26000

Gross saless committee 19500

Bad debts 5000

Addition in proviso for bad debts 2000

Loss on disposal of vehicle 2500

Depreciation on vehicles 12500

Depreciation on premises 14000

Vehicle disbursals 12000

Entire _______ ________

53500_ 48000

Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for external coverage

RM RM

Employee turnover 355000

Cost of gross revenues ( 179000 )

Gross net income 176000

Distribution costs 53500

Administritive disbursals 48000

( 101500 )

Operating net income 74500

Dividend received 5000

79500

Interest charges ( 3000 )

Net income on ordinary activities before revenue enhancement 76500

Taxation charge ( 15300 )

Net income on ordinary activities after revenue enhancement for the twelvemonth 61200

Proposed dividend ( 10000 )

Retained net income for the twelvemonth 51200

Retained net income brought frontward 100000

Retained net income carried frontward 151200

Balance sheet of Continental Limited for the twelvemonth stoping 31 Dec 2010 for external coverage

RM RM RM

Fixed Assetss

Tangible Assetss:

Premisess 296000

Vehicles 190000

486000

Investing:

Long term investing 100000

586000

Current Assetss

Stock 65000

Debtors 63000

Prepaid office wage 2000

130000

Cash at bank 42000

172000

Less Creditors: Sums Falling Due Within One Year

Creditors 25000

Accrued gross revenues committee 1500

Accrued revenue enhancement 15300

Proposed dividend 10000 ( 51800 )

Net Current Assets 120200

Entire Assets Less Current Liabilities 706200

Less Creditors: Sums Falling Due After More Than One Year

Loan ( 55000 )

651200

Capital and Militias

Called up portion capital 500000

Net income and Loss history 151200

651200

2.4 Calculate the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 compare them with the industry norm provided to measure the profitableness and liquidness of Continental Limited.

The computation will demo in 2.4.1.

2.4.1 Table of ration Calculation

Ration with formula Ration computation for Industry

Year 2010 norm

Percentage of cross 176000 / 355000 x 100 & A ; gt ; 30 %

Net income on gross revenues = 49.57 %

=Gross net income /Net

Net income x 100

Percentage of 74500 / 355000 x 100 & A ; gt ; 18 %

Operating net income on = 20.99 %

Gross saless

= Operating / Internet

Net income x 100

Tax return on capital ( 76500+3000 ) / 706200 & A ; gt ; 9 %

Employed x 100 % = 11.26 %

Current ratio 172000 / 51800 = 3.32: 1 & A ; gt ; 2: 1

=Current assets /

Current liabilities

Stock turnover period 365 yearss / stock turnover & A ; gt ; days90

= 365 yearss / stock in times = 365 / 3.11=

Turnover =117.36 yearss

Debtors collection 63000 / 355000 ten 365 yearss & A ; gt ; 45 yearss

Period = 64.7 yearss

= Debtor ratio ten

365 yearss

Creditor payment 25000 / 189000 ten 365 yearss & A ; gt ; 60 yearss

Period = 48.28 yearss

= creditor ratio ten

365 yearss

working for ( vitamin E )

Stock turnover = cost of gross revenues / mean stock value

= cost of gross revenues / ( opening stock + shuting stock ) / 2

= 179000 / ( 50000 + 65000 ) / 2

= 179000 / 57500

= 3.11 times

Working enemy ( degree Fahrenheit )

( Debtor / net recognition gross revenues ) x 365 yearss

= [ 63000 / ( 365000-10000 ) ] x 365 yearss

= ( 63000 / 355000 ) x 365 yearss

= 64.7 yearss

Working for ( g )

( Creditor / net recognition purchase ) x 365 yearss

= ( 25000 / 189000 ) x 365 yearss

= 48.28 yearss

Profitableness of Continental Limited

Percentage of gross net income on gross revenues in the ratio computation for twelvemonth 2010 which is 49.57 % higher per centum than the industry mean 30 % . In this manner can demo that, the gross net income on gross revenues in ratio computation for twelvemonth 2010 is more effectual and efficient than the industry norm, because it can command its purchase cost by doing the purchase at lower cost from provider and efficient in commanding its production cost by the effectual usage of stuffs and labor to cut down its production cost instead than industry norm.

Percentage of operating net income on gross revenues in the ration computation for twelvemonth 2010 is 20.99 % which more than industry norm that is 18 % . From the ratio comparing, the higher disbursals to gross revenues ration indicates that company is uneffective in its outgo control doing higher disbursals incurred to cut down its cyberspace net income earning. Conversely, the industry norm ratio is lower disbursal to gross revenues ratio indicates that company is effectual in costs control doing lower disbursal to incurred to increase its net net income earning.

Tax return on capital employed ( ROCE ) in the industry norm is 9 % and the ROCE in the ratio computation for twelvemonth 2010 is 11.26 where is higher than the industry norm per centums. In this ratio computation for twelvemonth 2010 showed that the higher return on capital employed indicates higher net net income generated from the capital employed in production and concern activities to increase the production and gross revenues volume every bit good as to increase the net net income earning. Besides that, the lower of the industry norm is the lower return on capital employed for uneffective usage of capital employed in production and concern activities to cut down production and gross revenues volume every bit good as to cut down net net income earning.

Liquid of Continental Limited

( d. ) The comparing between the ratio for twelvemonth stoping 31 December 2010 and the industry norms which the former is higher than the latter. Because, the current ratio of the twelvemonth stoping 31 December 2010 is 3: .32:1 higher than industry norm which is 2 ; 1.

( vitamin E ) The stock turnover period for the stoping 31 December 2010 is 117.36 yearss which more than the industry norm because it merely 90 yearss. Obviously, the longer stock turnover period indicates slow stock turnover in concern where goods purchased are kept in stock for long clip and so easy taken out for resale so that the stock is accumulate to bind up money, doing short term job.

( degree Fahrenheit ) The computation ratio for the twelvemonth terminal 31 December 2010 is 64.7 yearss which longer than the industry norm which is 45 yearss merely. From the ratio comparing, the longer debitor aggregation period for twelvemonth terminal 31 December 2010 indicate that company has given longer recognition clip to let debitor owning, doing longer clip taken by company to roll up money easy from debitors, so that larger debitor balance is accumulated to bind up money, conveying to shortage of money for paying back liabilities and confronting short term fiscal job.

( g ) The consequence ratio for twelvemonth terminal 31 December 2010 is 48.28 yearss is shorten than the industry norm which is 60 yearss. Therefore, the shorter creditor payment period indicate that company has obtained shorter recognition clip for having and paying to creditors so that company needs to pay creditor in clip, doing smaller creditor accumulated and short term fiscal job for deficit of money to pay back creditor.

Decision

In decision, I have learn the five different users are Managers of the company, employees of the company, stockholders or proprietor of the company, providers or creditors and clients or debitors. After that, I besides learnt the working on how to fix the income statement and balance sheet.

Furthermore, when I am making this assignment, I m confronting the job of some of the inquiry does non cognize how to make it. Because I does non hold any foundation in Accounting earlier. That clip, I am really disquieted and afraid this capable Principles of Accounting. But, fortunately, our talk Mr Chow, put a batch of attempt and patient learning us how to make the assignment, allow us understand this topic. So that, I can understand and have the thought about how to make my assignment.

Executive sum-up

The intent of the whole assignment is to understand the five different users and their demands for Continental Limited Financial statements. After that, understand what is the features of fiscal statements that will supply utile information to the users. Following, clear and understand the income statements and balance sheet.

In undertaking 1, the five different users are Managers of the company, Employees of the company, stockholders or proprietors of the company, providers or creditors, clients or debitors. After that, the five regulative features of fiscal statements have Relevance, Comparability, Understandability, Realibility, and Accuracy. In undertaking 2 and undertaking 3 is to fix the income statements and balance sheet, undertaking 2 is for the internal usage by company managers and direction. Undertaking 2 is for external coverage or publication. Last, task 4 is to cipher the appropriate accounting ratios.

In undertaking 1, Directors of the company, the proprietor of the company, these people are appointed to oversee the day-to-day activities of the company. Employees of the company, these people are employed by the company conducts its concern activities. Stockholders or proprietor of the company, as a successful corporate stockholders, the company ‘s foreman or spouse can be an enviable place. Suppliers or creditors, a creditor of a legal nature, the proviso of goods, services or capital loan debitor entity, a company or a individual. Customers or debitors, these are the people to purchase the services or goods of the company recognition. Features of fiscal statements, Relevance. Relevance means that the fiscal statements should be a major concern companies. Comparability. Comparable entities, every bit good as the fiscal statements of each entity should be comparable. Comprehensibility. Comprehensibility of the information contained in the fiscal statements is easy to understand its users. Reliability refers to the grade of assurance informations user trueness and genuineness of the fiscal and accounting information. Accuracy. Financial accounts to supply accurate fiscal information to the user to make up one’s mind because of inaccurate information will take to inaccurate consequences generated by users.

In decision, Directors of the company is really of import to appointed to oversee the day-to-day activities of the company. The accounting information about the company & A ; acirc ; ˆ™s fiscal state of affairs enable directors to pull off the concern expeditiously.

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