Introduction, review of accounting process and financial statement Essay

Part 1General pleasing invoice article of faithGeneral story principles argon set of rules generated by be system maturate to guide accountant in preparation and reporting of mo plunderary dictations. General acceptable write up principles are accounting guidelines (generally accepted accounting principles) enforced in United States and are issued by fiscal accounting standard come along (FASB). Other countries uses the guideline issued by international accounting standard board (IASB) supplemented by their own local laws. GAAP guide selection of events to be accounted for, the measurement of these events, and the mean of summarizing and communicating them to interested parties. In preserve proceedings GAAP make use of the following principlesa) historical cost principleb) tax income recognitionc) marching principled) full disclosureGAAP facilitate comparability of pecuniary story for various firms. Information that has been deliberate and reported in a correspond ent manner for different enterprise is considered comparable. Comparability enables users to identify the real similarities and variations in economic phenomenon. Comparability is achieved when companies use similar accounting procedures (e.g. use of same inventory manner, depreciation) to account for similar economic circumstance (Porwal, 2008).Double entry accountingThis is the method acting of recording accounting deed where every account entry must be accompanied by a credit entry and vice versa. If this method of accounting is non enforced then the basic accounting comparison i.e. ASSETS = LIABILITIES + EQUITY leave behind not counterbalance. Therefore double entry accounting is apply to ensure that financial record are complete and thence ensures that final statements give a true and fair view of financial performance at a given date otherwise if an accounting exertion is preserve on one side i.e. a debit or credit the balance flat solid get out not balance whic h indicate an error in preparation of financial statement (Fridson & Alvarez, 2002).historic costHistorical cost is the original cost incurred in encyclopaedism of summations. tout ensemble pluss and liability are record in financial statement under historical cost principle. Under this principle the ex swop set established or cost incurred at the time a transaction occurs is the flat coat for initially recording summations and liability. Cost is usually the best estimates of an asset or liability i.e. cost and fair nurse of an asset are equal at acquisition date. Historical cost principle ensures that in that location is consistency in recording asset and liability where assets are recorded at historical cost and subsequent loose of value is shown as depreciation and adjusted from historical cost to show the book value of an asset at a given date.Accrual seat vs. money basis accountingMeasurement of revenue enhancement can either be through aggregation method or faci le accounting basis. The deuce accounting method consists of rules that determines how and when depreciates and revenue are reported. With accretion basis of accounting, revenue is recorded in the period in which it is earned and not needfully when coin is legitimate piece of music expenses are recorded when they have been incurred. This method of accounting is used by all publicly traded company and tumescent businesses. With cash basis of accounting revenue is recognized when cash is original sequence expenses are recorded when cash is paid (Fridson & Alvarez, 2002).The major difference between the two methods is that1). In apply the cash basis of accounting there are no any payables or receivable recorded in the balance sheet while in using the accrual basis both receivables and payables are recognized in the balance sheet. charm reporting revenue using accrual basis both self-possessed and uncollected revenue are recorded while for cash basis alone the cash amount co llected from sales and other activities are recorded. For instance if a customers pay $ 100,000 for goods which he has not yet received by the remainder of accounting period, using the cash basis this entrust be shown as revenue in the income statement but while using the accrual basis $100,000 is depict as deferred revenue and will appear in balance sheet as latest liability.On the other hand when the firm deliver goods or offers a work but such amount remain outstanding at the end of the period using cash basis such a transaction will not be recorded but while using the accrual basis such amount will be described as accruedrevenue and will be recognized as revenue in the income statement and recorded in balance sheet as underway asset (Siegel, 2007).2) In a cash basis report, only the cash paid to vendors are shown as expenses while in accrual reports both paid and unpaid amount are include as expenses. For instance if a company pay rent amounting to $120,000 for 12 month bu t by the end of accounting period only rent for six month have been utilized using the accrual method $60,000 will be recorded as rent expense in the income statement while the remaining $ 60,000 are described as prepaid expense and are recorded as authoritative asset in the balance sheet. For cash basis the whole amount of $120,000 will be recorded as rent expense during the current period.In preparation of financial statement the accrual basis of accounting is used where revenue is recorded in the accounting period it is earned disregarding of whether cash is received and associated cost used in generation of this revenue are as well recorded in the same period. This is used in order to show the correct gelt generated by an enterprise during a certain period.Current assets and liability vs. non-current distributor pointsAssets include anything of value that is owned or due to the business. Current asset are those that mature in little than one course e.g. inventory, debtors , prepayment and note receivables. Liabilities represent a companys obligation to creditors. Obligations that have to be paid within one course of instruction are called current liabilities. In preparation of financial statement asset are recorded as either current or non-current while liabilities are dividendinto current and non-current liability and companies have to adhere to this rule of financial reporting.Part 2Bp collectionBP group present it final statement in term of income statement, balance sheet and cash flow statement. All the statement are presented in vertical format and each dot is shown together with the corresponding item in the previous year. The income statement shows the income generated and part of this profit to various stakeholders i.e. among the total profit generated in year 2008 which amounted to $ 35,239 one thousand million the providers of finance received $1,547 million, political relation received $12,617 million and the shareholders received $ 21,666. The group balance sheet is dividend into five categories namely current assets, non-current assets, current liabilities, non-current liabilities and equity. The cash flow statement is dividend into three category i.e. the operating activities the place activities and the financial support activities. It financial statement are prepare in accordance with relevant UK law and international financial reporting standard.Quicksilver IncThe company similarly presents it final account in term of income statement, balance sheet and cash flow statement. The income statement show the profit generated and distribution to various stakeholders i.e. shareholders, government and minority interest. For each item in year 2008 the corresponding item in year 2007 and 2006 is also shown. The balance sheet is also presented in a vertical format where items are categorized into non-current assets, current assets, current liability, non-current liability and equity.The cash flow statement is di vidend in to operating, investing and funding activities. It financial statement has been nimble in accordance with the general acceptable accounting principles.RTL groupIt general presentation of financial statement is alike in above two companies with the balance sheet dividend in to current asset and liabilities vs. non-current item and equity. The balance sheet and income statement are prepared in vertical format and show corresponding figures of previous year. property from operating activities is the best measure of company performance since it indicates whether or not the company will be able to meet it financing and investing need. Even if the company may have generated sufficient profit it may be in financial difficulty and may even be declared bankrupt for failure to meet obligation of creditor. Higher profit may be as a result of a change in accounting policy and not improvement in performance. more than detail relating to each companies associate and subsidiaries can be collected from the file they make in the respective country in which they are incarnate and their final report.Predicting companys future trendQuick silverThe company net income increased by 19% in 2007 compared to 2006. In 2008 the net income increased by 11% and in the year 2009 income is pass judgment to grow by between5%-8%. The company focusing also expect a hard time ahead due to current financial crisis which has led to a decline in household income and dispirit demand.RTL groupIn year 2008 revenue grew by 0.01% compared to and in year 2009 revenue are expected to decline by 2-5%. The company management and directors expect a drop in revenue in cay market due to global economic crisis which has heightened the intensity of competition.Bp groupThe net revenue in year 2007 grew by 7% compared to 2006. In 2008 income grew by 27%. In 2009 revenue is expected to grow between 30-35%. in spite of the harsh economic condition the management expects to increase it revenue wi n through higher fuel price.