Report on financial position of the business

Table of Contents

Introduction 3

Users of financial statement 4

Discussion 5

Accrual concept 5

Economic entity 6

Going concern 7

Revenue and cost recognition 8

Full disclosure 8

Journal transactions 9

Recommendations 10

References 11

Introduction of financial statement

Newly start missions and small business organizations rely on financial reporting that are said to define, benchmark and give information to the shareholders and other stakeholder in the market. The information is used in a personal decision and measure overall of performance and health in which the organization is working. There are many small and new business organizations who are working in weak financial reporting system and taking last breadth of time. Here we discuss the important. Financial reports and is financial statements over smaller new business organization. The first one is balance sheet balance sheet, also known as financial statement of business, is a single and most important financial report for the small business. Basically it is a report to check the check the financial position of business at a glance. Liabilities plus owners’ equity is equal to assets. The main elements of balance sheet are liabilities assets and owners’ equity (Weygandt, et al., 2015).

 Balance sheet is an important and major report of an organization and they play a vital role in the financial statements of the business. The second statement is income statement. It is referred to earn profit and loss statement that is just used to find out the final profit of the business. Objective of income statement is to project upcoming sales and expense to get the profit that could be achieved at the end of the year or a financial year. Gross profit is based on the total income minus cost of goods sold. The next important statement is cash flow statement. Cash flow statement is concerned with them company’s profitability and to learn about how much cash is in and out from the organization. Cash flow statement is prepared monthly and to check the inventory, of course, is an expense there that are made by the organization on monthly basis. The cash flow statement is based on three types of activities such as operational activities in estimate activities and the financing activities. Beside these statements of company, there are other statements such as credit report, data report and other documents that are necessary to prepare to gain the profit of the company.

Users of financial statement

Working in the business environment, there are many entities that are using financial statement. To learn about the financial position of the business, here is least drop the financial statements users who use the financial statement (Wild, et al., 2005).

Company management: the management of team needs to understand the profitability and cash flow ratio of the company to learn about the monthly profit and revenue that is inverted from the business. It shows that, however, company is dealing with profit or loss.

Competitors: companies that are working in the competitive market they are also used to write about the financial statements of the business and to gain access of their financial statement. They do every kind of work. They get knowledge from the financial statement of competitors and gain the competitive strategies to improve their strategies to get the customer retention.

Employees: A company makes like to provide financial statements to the employees along with the detail of the accounts and documentation of the company. It increased the employee involvement in the business transactions and increase employees interest in the business.

Investors: who invest in the company or the business and it kind of small or large business organization? They want to learn about the financial position of the business and for this they get assessed from the management of the company in the financial statement of the company. Investors check the performance of company by potential condition of the company and financial statements.

Lenders: When company needs loan or investment they get assessed from some kind of lenders. The lenders do not put their amount in risk and give them without checking and investigating the statement and financial position of the business. Before approval of loan financial institution, check the financial position and conduct a complete program to learn about them is statement of the company?

Besides these bodies, there are many other stakeholders such as employees, suppliers, labor unions and agencies who assessed the financial position of the company to check with them financial statements and financial position of the company. It is necessary to assess the financial statements to learn about the true and pure position of the company, and these bodies could have authority to check the financial position (Hellström, 2006).

Discussion of financial statement

Financial statements of the company is most likely working according to the principle of accounting that are approved by GAAP considered for it’s generally accepted accounting principle. Or principal are approved by authorities and work according to the organization structure and implement according to the situation of the company. Followings are the principles that are discussed here about the accounting principles.

Accrual concept of financial statement

Financial statements of the companies are prepared under the accrual concept of accounting that are needed to enter income and expense must be recognized in the accounting period of the company. Cash flow statement is accepted that it could not win accessory that the Super cash flow statement is prepared according the accrual concept as there are primary purpose of presenting cash flow is to check the effect of transactions during and accounting. Accrual basis based on the accounting term that income must be recorded in the accounting. In which it has earned. On the other hand, in case of expenses, there must be record of accounting. In the in which they incurred. It is not recorded on the basis of. In which it is paid. Accrual basis of accounting ensure that expenses are matched with the income that are generated in an accounting. Therefore, it is familiar to matching principles.  

Economic entity of financial statement

Single economic and pretty concept recommended that organization associated with each other through their different relations and common computer control operating system of units and it could be consolidated. Financial statement of group companies that reflect the financial position of the group companies consolidated financial statements of group companies merge with prepared according to the single economic entity based in order to avoid misrepresentation and other problems in the financial statements and activities of the companies. Consolidated financial statements are of the company are based on the group of companies, such as one or two combined and working together on the financial basis. Therefore, it is needed that there must be elimination of the effects of any intercompany transaction during balancing. Intercompany transaction was released on the principles that there must be recorded of entries in one place. If the entries are recorded twice day, there must be misrepresentation of the products and services that are rendered by the company. 

Going concern of financial statement

Going concern is basic conventions in the accounting of bases and principle of the financial accounting statement. Financial statements are prepared according to the assumption that the business entity will continue to operate its function in the coming future. It is assumed that there is no need of intention or any part of Management to liquidate the entity to significantly make the operational activities of the business. Therefore, the companies realize its assets and settle its liabilities according to the normal course of the business. It is the duty of the management of a company to determine whether the going concern exemption is reasonable to prepare financial statements or any other principle of accounting is used to prepare financial statements. It should be considered that the management. Are working valid? There are some problems accords adapting to going concern principle of accounting such as detrition of liquidity, position of the company, significant trading, loss and aggressive growth strategy, as well as there are many other problems that would be faced by organization while adopting a going concern business.

Revenue and cost recognition

Income and expenses is the basic head of the business. Revenue and cost recognition system is based on the matching principle such as revenue recognition, are recognized as the period in which it is earned against the transaction of the business. For instance, if a company enters into an agreement or relationship with the buyer or any other person or two agreement to sell some foods to the customers, the company delivers the goods but does not receive payment until 30 days after the delivery. While the company had an agreement with the buyer and followed throughout on its end of the contract Since there was no pre existing relationship with the buyer prior to sale, a constructive content might not recognize the revenue from that sale until the company received payment after 30 days. As far as concerned with the expense recognition, the insert produced by the company and sold to the service renders some expenses that are generated from the production of the goods. Accounting standards requires some specific rule of accrual basis or other matching principles to match all expenses with the income that is generated from the business. It is based on the part of a global business that requires expense must be recognized against the income that is generated from the business. 

Full disclosure: Full disclosure system is used in Securities and Exchange Commission to fulfill the requirements of the publicly traded companies and the shares of the company traded on the public. Full disclosure also referred to the needs of the general public and transaction of the both parties that are exchanging Securities, and material issues pertaining their transaction. For example, in the business of real estate there is a typical disclosure from signed by the seller that must be reserved in the legal transactions. If related discovered that seller unknown unknowingly the lied about the property. There are some requirements of SEC. To follow the laws of world’s clear that should not be increased to produce some challenges and issues for the companies to raise the capital in the stock market. Publicly owned companies are required to prepare a form of different animal reports for the Securities Exchange Commission (Argiles & Slof., 2003.

Journal transactions

Financial Transactions For Mr. Sameer

a. Investment of money in the business (1 transaction) 

1) On 2 April 2020, Mr. Sameer invested $500,000 cash in the business. 

b. Performance of consultancy services for cash and credit (2 transactions) 

1) On 12 April 2020, Mr. Jack purchased his consultancy services at cash payment of $20,000.

2) On 16 April 2020, Miss Julia made a contract with him for consultancy services at credit account of $15,000.

c. Payment of expenses (3 transactions) 

1. On 30 April 2020, Mr. Sameer paid utility bills costing $1000. 

2. On 30 April 2020, Mr. Sameer paid rent of $10,000 to the land owner. 

3. 25 April 2020, Mr. Sameer made payment of $5000 for advertisement published in local magazines. 

d. Purchase of assets for cash and credit (2 transactions) 

1) On, 21 April 2020, Office furniture was purchased at $20,000 cash. 

2) 14 April 2020, Office supplies were purchased on $1000 credit. 

e. Collection of cash accounts (1 transaction) 

1) 26 April 2020, Mr. Sameer collected $15,000 cash for credit sales 

d.   Payment of accounts by cash (1 transaction)

1) 28 April 2020, Mr. Sameer paid for credit purchases of $1000. 

General Journal 

General Ledger

Trial Balance

Recommendations

Here are some recommendations that are made to the Mr. Sameer about the transactions made above:

·         Lawful commitment to keep up sufficient records

·         Assists with improving and develop the organizations

·         It makes information base to enable your representatives to develop and develop

·         Keeping great records to help use your time all the more viably

·         To gracefully data required by the executives

·         To recognize training needs

·         To utilize the information for succession arranging

·         Help with acquiring credits

·         Get ready personal government forms

·         Aid the investigation of new speculations.

·         To decide the worth or development of business after some time

·         To advises the history regarding the business

It give data to control the income in the business Keeps great track of the expenses of the staff and their exhibition Helps in distinguishing robberies inside the business itself Builds the odds of the business working and making progress (Bushman, et al., 2004).

References of financial statement

Argiles, J. M. & Slof., E. J., 2003. The use of financial accounting information and firm performance: an empirical quantification for farms. Accounting and Business Research, 33(4), pp. 251-273..

Bushman, R., Chen, Q., Engel, E. & Smith., A., 2004. "Financial accounting information, organizational complexity and corporate governance systems.. Journal of Accounting and Economics, 37(2), pp. 167-201..

Hellström, K., 2006. The value relevance of financial accounting information in a transition economy: The case of the Czech Republic.". European accounting review, 15(3), pp. 325-349..

Weygandt, J. J., Kimmel, P. D. & Kieso, D. E., 2015. Accounting principles.. s.l.: John Wiley & Sons,.

Wild, J. J., Kwok, W., Shaw, K. W. & Chiappetta, B., 2005. Financial accounting: information for decisions.. s.l.:McGraw-Hill/Irwin..