The Characteristics Of Financial Statement Accounting Essay

The chief intent of this assignment is to find the five types of accounting users, their demands for Continental Limited fiscal statement, prepared an income statement and balance sheet with necessary working for Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage, prepared the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in recognized format for external coverage or publication and, an appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 will be prepared base on income statement and balance sheet which done on undertaking 2 and task 3. Last, industry norms provided to entree profitableness and liquidness of Continental Limited will be compared.

First, the accounting users can be classs into internal users and external users. Internal users includes of creditors, providers, investors, revenue enhancement governments, authorities bureaus, clients, and fiscal analysts or advisor. Internal users are the users that inside or within an organisation, it is normally includes of directors, employees, and stockholders. Next, the 5 features of fiscal statement is comparison, dependability, seasonably, relevancy, and truth.

Table of Content Pages

Introduction 3

Introduction to task 1 4

The 5 types of accounting users and their demands. 4-5

The 5Characteristics of Fiscal Statement 6-7

Decision for undertaking 1 7

3.0 Introduction for undertaking 2 8

3.1 The procedure of fixing income statement and balance sheet for 8-16

Continental Limited

3.2 Decision for undertaking 2 16

4.0 Introduction to Task 3 17

4.1 Classify disbursals into part cost and Administrative disbursals. 17-20

4.2 Decision for undertaking 3 20

5.0 Introduction for Task 4 21

5.1 Calculation of accounting ratio 22-23

5.2 Comparison between Continental Limited and Industry Averages to Measure 24

Profitableness

5.3 Comparison between Continental Limited and Industry Averages to Measure 25

Liquid

5.4 Decision for undertaking 4 26

6.0 Conclusion and recommendation 27

7.0 Reference 28-29

Introduction

Accounting is a system where an organisation uses to enter all the concern dealing. It can assist organisation to analysis their concern public presentation or do any concern determination. Harmonizing to Michael Russell, he demonstrates that history is a recording of fiscal or money minutess.

In undertaking 1, the five types of accounting users and their demands for Continental

Limited fiscal statement will be defined. Besides, the five regulative features of the fiscal statements that help to supply utile information to those accounting users will be explain excessively. Accounting users is the people who need accounting information to do determinations, invest, be aftering and budgeting.

In undertaking 2, an income statement and balance sheet with necessary working for Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by company managers and direction will be prepared. Income statement can assist organisation to observe down the disbursals and net income and it normally prepared for 1 clip in old ages.

In undertaking 3, the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in recognized format for external coverage or publication will be prepared. Which is means that after the income statement and balance sheet of Continental Limited prepared, it will be shown to the populace or foreigners for external coverage.

In undertaking 4, an appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 will be prepared base on income statement and balance sheet which done on undertaking 2 and task 3. Following, the industry norms provided to entree profitableness and liquidness of Continental Limited will be compared.

2.0 Introduction for Task 1

In undertaking 1, 5 types of accounting users and their demands for the fiscal statement of Continental Limited will be discussed. Following, the 5 regulative features of these fiscal statements that will supply utile information to the users will besides be defined in this undertaking.

2.1 The 5 types of accounting users and their demands.

Users of accounting can be classs into external users and internal users. External users are the users outside of the organisation which includes of creditors, providers, investors, revenue enhancement governments, authorities bureaus, clients, and fiscal analysts or advisor. Internal users are the users that inside or within an organisation, it is normally includes of directors, employees, and stockholders.

The first type of accounting users is directors of the company. Manager is a individual who in charge in supervising and pull off all the activities of others working which includes of planning, forming, taking and commanding. Accounting information is needed to a director to cognize that whether the organisation are gaining or losing. Accounting information besides helps directors in doing concern determination because it can allow director cognize that the current fiscal state of affairs of an organisation. Besides, it besides helps directors to cognize how much their clients owe and how much they owe to their providers. Accounting information besides helps directors in organisation budgeting procedure by know the fiscal state of affairs of the organisation and apportion the money to each section sagely. Accounting information are of import to directors to guarantee their concern are managed expeditiously and efficaciously.

The 2nd type of accounting users is providers or creditors. Suppliers are the individual who provide or supply merchandises or services and in return get an in agreement payment. But normally providers did n’t hold proper communicating and less interact among each others. Suppliers need to cognize an organisation accounting information to cognize the current fiscal state of affairs of an organisation whether the organisation able to pay the debts that the organisation owe. Supplier besides includes of money loaners such as bank or landlord. So, if they want to impart money to the organisation, they had to look into the current fiscal state of affairs to do certain they will be able to pay back in hereafter.

The 3rd type of accounting users is investors. The people who wish to put to an organisation with outlook to acquire back sensible net income in return are known as investors. So, they need to cognize about the organisation history information to mensurate the public presentation of the organisation and see whether it is deserving to put or might convey loss to the investors

The Forth type is the employees of the organisation. Employees is the people who are recruit by the organisation and usage to supply merchandises and services and acquire salary in return. They must cognize the history information of an organisation to see employee ‘s benefits or pension support is able to pay to them. The 5th type is the stockholders or proprietors of the company. They are the foreman of the company, so they were needed to cognize the public presentation of the organisation and find the hereafter program. Besides, they besides need to cognize the accounting information to cognize how much they can retreat as dividend payment.

So, these are the five types of accounting users that use fiscal information to carry through their different types of demands.

2.2 The Characteristics of Financial Statement

Fiscal statement is a papers that usage to enter down all the concern dealing or the organisation fiscal activities. Financial statement are includes of test balance sheet and income statement.

The first feature of fiscal statement is relevancy. Relevance is use to bring forth more information to assist all accounting users in determination devising. It can assist accounting users to foretell future result such as net income or loss. To guarantee the accounting information are accurate, so those fiscal history prepare based on accounting constructs and policies present must be relevant which is capable of act uponing the economic determination of the users.

The 2nd feature of fiscal statement is seasonably. Timely is mentioning to the information which is present or past. So that the accounting information that accounting users received are trusty and utile in assisting them make any determination. If the history information non prepared to supply information in clip, it will impact the determination devising of accounting users which might do loss.

The 3rd feature of fiscal statement is accuracy. Accuracy is about how clearcutness of the fiscal statement of an organisation that provides many of import information to all accounting users. If the fiscal statement are non accurate or made in past clip, it may do many job to an organisation in be aftering their hereafter activities and impact the determination devising of accounting users.

The following feature is dependability. Fiscal statement must be dependability to do certain that it can carry through accounting user ‘s demands. A fiscal statement is dependability when it able to reflects the substance of dealing to show dependably and genuinely what has already happened. Next is the fiscal statement are done free from prejudice and it is impersonal. Last, the fiscal statement must in prudent and realistic where there is any uncertainness.

The last feature of fiscal statement is understandability. A fiscal history should be prepare in a status which easy to understand by others that have knowledge or experiences in concern, accounting and those economic sciences activities.

So, these are the five feature of a fiscal statement that an organisation should revise when fixing the company concern fiscal histories.

2.3Conclusion for undertaking 1

In my decision, there are many types of accounting users that use history to carry through their demand. Their demands includes of doing determination, put, giving loan and cognize the state of affairss of the organisation. Besides, there are besides 5 types of standards of fiscal statement that an organisation should revise when they fixing fiscal statement.

3.0 Introduction for undertaking 2

In undertaking 2, the income statement and the balance sheet of Continental Limited for the terminal of 31 December 2010 will be prepared. It will be prepared in an recognized format for the demands of external coverage and publication.

3.1 The procedure of fixing income statement and balance sheet for Continental Limited

( A ) Closing stock should be recorded at cost or net resale value which one is lower. Since cost RM65000 & lt ; net resale value RM70000, so the cost RM65000 should be shuting stock and set in the trading accounting of income statement. Last, recorded in balance sheet which under the current plus.

( B )

Cash Account

RM RM

Gross saless 5000 Purchase 4000

Stationery 700

Electricity 300

5000 5000

Gross saless in trading history of income statement

=RM360000 + RM5000=RM365000

Purchase in merchandising history of income statement

=RM200000+RM4000=RM204000

Stationery as disbursal put in net income loss history of income statement=RM700

Electricity & A ; H2O in net income loss history of income statement= RM7000+RM300=RM7300

( C )

Gross saless committee as disbursal put in net income loss history of income statement

=RM18000 ( paid from test balance ) +RM1500 ( accrued at terminal of twelvemonth ) =RM19500

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

Office wages as disbursal put in net income loss history if income statement.

=RM28000 ( paid from test balance ) -RM2000 ( prepaid at the terminal of twelvemonth ) =RM26000

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

( D )

Debtor Account

RM RM

Balance B/D 75000 ( – ) Bad debts 5000

Balance C/D 70000

75000 75000

Balance B/D 70000

Bad debts account

RM RM

Debtor 5000 P/L history 5000

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 different 2000

7000 7000

1 Jan2011 Balance B/D 7000

( E.F )

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 history

RM RM

Vehicle disposal history 12500 1 Jan 2010 Opening Balance B/D 60000

31 Dec 2010 Balance C/D 60000 Depreciation as disbursal put in

P/L history 12500

72500 72500 1 Jan 2011 Balance B/D 60000

Vehicle disposal history

RM RM

Vehicle cost sold 50000 Provision for depreciation on vehicle sold 12500

Proceed 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/D 40000

Depreciation as disbursal put in P/L

history 14000

54000 54000

Balance B/D 54000

( g )

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

H )

Proposed dividend to be deducted from net net income at the underside of income statement

=2 % x RM500000 ( portion capital from test balance ) = RM10000

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

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

RM RM RM

Gross saless 365000

Less Return Inwards 10000

Net Gross saless 355000

Opening Stock 50000

+ Purchase 204000

– Tax return outwards 15000

+ Carriage inwards 5000 244000

Less Closing Stock 65000 179000

Gross Net income 176000

Add Income: 5000

Dividend received 181000

Less Expenses:

Stationery 700

Office electricity & A ; 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

Interest charge 3000 104500

Net net income 76500

Less Taxation charge 15300

Less proposed dividend 10000

Net income for the twelvemonth 51200

Add Retained net incomes brought forwards 100000

Retained net incomes carried frontward 151200

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

Fixed assets/ Non-current assets RM RM

Office premises at cost 350000

( – ) Provision for depreciation on premises ( 54000 )

Vehicles at cost 29600

( – ) Provision for depreciation on vehicles 250000

Long-run investings ( 60000 )

Current assets 190000

Closing stock 65000

Trade debitors 70000

-Provision for bad debts ( 7000 )

63000

Bank 42000

Prepaid office wage 2000_

172000

758000

Issues portion capital

Share capital 500000

Add Reserve

Retained net incomes carried frontward 151200

Stockholders ‘ equity 651200

Add Long-term liabilities/ Non-current liabilities

Loan 55000

Add Current Liabilitiess

Creditors 25000

Accrued gross revenues committee 1500

Accrued Taxation 15300

Proposed dividend 10000 51800

758000

Decision for undertaking 2

In my decision, income statement and balance sheet of an organisation is really of import to cognize that organisation are now in net income or loss.

4.0 Introduction for undertaking 3

In undertaking 3, the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in recognized format for external coverage or publication will be prepared. Which is means that after the income statement and balance sheet of Continental Limited prepared, it will be shown to the populace or foreigners for external coverage.

4.1 Classify disbursals into part cost and Administrative disbursals.

Distribution costs Administrative disbursals

RM RM

Stationery – 700

Office electricity & A ; 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

Vehicles 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

Administrative 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 of the twelvemonth 61200

Proposed dividend 10000

Retain 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

Fixed Assets RM RM RM

Tangible assets:

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: Sum Falling Due

Within One Year

Creditor 25000

Accrued gross revenues committee 1500

Accrued revenue enhancement 15300

Proposed dividend 10000

( 51800 )

Net current assets 120200

Entire Assets Less current Liabilitiess 706200

Less Creditors: Sum 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

3.2 Decision for undertaking 3

In my decision, income statement and balance sheet for external coverage or publication must be prepared neatly and exactly. Because it might impact the image and the concern of the organisation,

Introduction for undertaking 4

Accounting ratio is one of the ways to specify the relationship among consequence and the others, such as balance sheet, and net income loss history. Accounting ratio can utilize to mensurate the efficiency, effectivity and profitableness of the organisation harmonizing to its fiscal studies.

5.1 Calculation of accounting ratio

The tabular array below is the computation of the accounting ratio between Continental Limited and the industry norms for twelvemonth stoping 31 Dec 2010.

Ratio with expression Ratio computation Industry

for twelvemonth 2010 norms

Percentage of gross net income on gross revenues 17600 x 100 30 %

= Gross net income x 100 355000

Net gross revenues = 49.58 %

Percentage on operating net income on gross revenues 74500 x 100 18 %

= Operating net income x 100 355000

Net gross revenues = 20.99 %

Tax return on capital employed 9 %

= Net net income before involvement ten 100 ( 76500 + 3000 ) x 100

and revenue enhancement 158000-51800

Entire assets-current liability =11.26 %

Current ratio 2:1

= Current assets 172000

Current liabilities 51800

= 3.32: 1

Stock turnover period 90 yearss

= 365 yearss 365 days/3.11 times

Stock turnover in

Timess = 117.36 yearss

Stock turnover = Cost of gross revenues

Average stock value

Average stock = ( Opening stock value + Closing stock value ) / 2

= ( 50000 + 65000 ) /2

= 57500

Stock turnover = 179000

57500

=3.11 Timess

Debtor aggregation period 0.177 ten 365 yearss 45days

= Debtor ratio x 365 yearss = 64.6 yearss

Debtor ratio = Debtor

Net recognition gross revenues

= 63000

355000

= 0.177: 1

Creditor payments period 0.132 ten 365 yearss 60 yearss

= Creditor ratio x 365 yearss = 48.18 yearss

Creditor ratio = Creditor

Net recognition purchase

= 25000

( 204000-15000 )

=0.132: 1

Comparison between Continental Limited and Industry Averages to Assess Profitability

Harmonizing to the tabular array above, it has province that the gross net income border of Continental Limited is 49.58 % while the gross net income border of industry norm is 30 % . In this state of affairs, when the gross net income border are higher, it means that the organisation are commanding their buying cost effectual and efficient Besides, it besides show that the organisation perform good in apportioning their natural stuffs and labour force to assist in cut down production cost and increase their gross net income.

Next, the operating net income border of Continental Limited ratio computation for twelvemonth 2010 is 20.99 % while the industry norm is 18 % . When the operating net income border is high, its agencies that the organisation net incomes are still high even finish paying those variables cost. Operating net income border can demo whether an organisation are efficaciously in their disbursals and variable cost.

Last, the return on capital employed ( ROCE ) of Continental Limited in 2010 is 11.26 % while it is 9 % in industry norm. ROCE are normally used to mensurate all the resources that available in the organisation and show the efficiency and gross of an organisation. So, when the per centum of ROCE becomes higher, the public presentations of the organisation are better. The per centums of Continental Limited is higher than the industry norm,

Comparison between Continental Limited and Industry Averages to Assess Liquidity

Harmonizing to the tabular array above, it has show that the current ratio of Continental Limited is 3.32:1 and the current ratio of industry norm is 2:1. Current ratio is use to mensurate the fiscal position and the ability of the organisation in utilizing their current assets to finance its current liabilities. In this state of affairs, it shows that the finance of the organisation is stable and did non confront any short-run fiscal jobs.

Second, is the stock turnover period of Continental Limited which is 117.36 yearss and the industry norm is about 90 yearss. Stock turnover period is the clip that the goods maintain before purchased by clients. In this state of affairs, Continental Limited had longer stock turnover period comparison to the industry norm, it might do short-run fiscal job because of maintaining stock for long clip and easy taken out for resale.

Following is the debitor aggregation period. The debitor aggregation period of Continental Limited is 64.6 yearss and 45 yearss for industry norm. Based on this period we can cognize that Continental Limited is taking longer clip than industry norm to roll up debts from the debitors. It might do organisation holding deficit of wage back those liabilities and face short-run finance job.

In last, the creditor payment period of Continental Limited is 48.18 yearss and the industry norm is 60days. Which shows that Continental Limited has the shorter clip to pay the creditors compare to industry norm and it might do deficiency of many to pay back the creditors

Decision for undertaking 4

In my decision, accounting ratio can enable an organisation or accounting users understand the liquidness and profitableness of an organisation. So, it make easier when an organisation program for future of budgeting.

6.0 Conclusion and Recommendation

In my decision, this assignment enables me to understand the utility and the map of the history which can assist to cognize good an organisation easy. In undertaking 1, the most common accounting users are defined and allow me understand of the 5 basic features of fiscal statement. So, it helps a batch in fixing an organisation fiscal statement.

While in undertaking 2, it let me cognize that income statement and balance sheet of an organisation is really of import to cognize that organisation are now in net income or loss. It besides allow me allow the proper manner in fixing balance sheet and income statement for an organisation.

In undertaking 3, income statement and balance sheet for external coverage or publication must be prepared neatly and exactly. Because it might impact the image and the concern of the organisation,

In undertaking 4, accounting ratio can enable an organisation or accounting users understand the liquidness and profitableness of an organisation. So, it make easier when an organisation program for future of budgeting.