AY104 Introduction to Financial Accounting NUIG assignment sample Ireland
Financial accounting is the process of recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. It is also referred to as the “language of business” because it provides a framework for investors, creditors, and other interested parties to evaluate a company’s financial health and performance.
The goal of financial accounting is to provide information that is both accurate and timely so that businesses can make informed decisions about their finances. Financial statements such as the income statement, balance sheet, and cash flow statement are used to measure a company’s financial performance over time and identify trends and opportunities.
Financial accounting is a critical part of running a successful business, and it’s important to understand the basics so you can make informed decisions about your company’s finances.
There are generally accepted accounting principles (GAAP) that provide guidance on how financial statements should be prepared. These principles are designed to ensure that financial statements are consistent and transparent, and they provide a framework for businesses to follow when preparing their financial reports.
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Individual assignments, group-based assignments, reports, case studies, final year projects, skills demonstrations, learner records, and other solutions are among the various sorts of assignments provided to students in this course. For Irish students, we also offer Group Project Presentations.
In this section, we are describing some activities. These are:
Assignment Activity 1: Accounting Information:
Understand the meaning and purpose of accounting.
The purpose of accounting is to provide financial information that is useful in making business decisions.
The meaning of accounting is the process of recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. Financial transactions can include revenue, expenses, assets, and liabilities. Accounting provides a record of these transactions so that businesses can track their financial performance over time.
Distinguish between financial and management accounting.
It can be tricky to distinguish between financial and management accounting because both are integral parts of a company’s overall accounting function.
Financial accounting is mainly about recording and reporting a company’s financial performance, whereas management accounting is mainly about providing information that helps managers make informed decisions about the running of the business. Financial reports are aimed at external stakeholders such as shareholders and creditors, whereas management reports are aimed at internal stakeholders such as managers and employees.
Financial accounting – recording and reporting the company’s financial performance.
Management accounting – providing information to help managers make informed decisions.
Discuss the accounting requirements of different types of business entities.
There are four main types of business entities in Ireland: sole traders, partnerships, companies, and cooperatives. Each type of entity has different accounting requirements.
Sole traders must keep records of all income and expenditure, as well as details of assets and liabilities. Partnerships must prepare annual accounts which show the profit or loss for the year, as well as the partners’ share of that profit or loss. Companies must prepare financial statements in accordance with generally accepted accounting principles (GAAP), which show a true and fair view of the company’s financial position. Cooperatives must prepare accounts that comply with the Cooperative Societies Act 2006.
Different businesses will have different reporting requirements depending on their size and structure. However, all businesses must keep accurate records of their financial transactions and prepare accounts that comply with the relevant legislation.
Identify the users of accounting information and discuss their needs.
The main users of accounting information are individuals within a company, management, and outsiders who need to make decisions about the company.
Individuals within a company need accounting information in order to make informed decisions about the company’s financial position and performance. For example, they need to know whether the company is making a profit or losing money so that they can decide whether they should be investing in it.
Management needs accounting information in order to make strategic decisions about the future of the company. For example, they need to know how much debt the company has so that they can decide whether it is risky to expand operations.
Outsiders who need to make decisions about the company also rely on accounting information. For example, potential investors will want to see the company’s financial statements to assess its riskiness. creditors will want to see the company’s accounts to assess its ability to repay loans.
There are many users of accounting information, but they all have one thing in common: they need accurate and timely information so that they can make informed decisions about the company.
Describe the sources of regulation of accounting information.
The three main sources of regulation of accounting information are government, professional organizations, and the markets.
Government regulation comes in the form of laws and regulations promulgated by Congress, state legislatures, and administrative agencies such as the Securities and Exchange Commission.
Professional organizations such as the American Institute of Certified Public Accountants develop generally accepted accounting principles (GAAP), which provide guidance for financial reporting.
Lastly, the markets also play a role in regulating accounting information through mechanisms such as stock prices and credit ratings.
Identify the components of financial statements and explain the accruals concept.
There are four main components of financial statements: balance sheets, income statements, cash flow statements, and statements of shareholder equity. Each one provides different information about a company’s financials.
The accruals concept is an important part of accounting that states that revenue and expenses should be recognized in the period when they actually occur, not when the cash is received or paid. This is because matching revenues and expenses gives a more accurate picture of a company’s financial performance.
For example, suppose a company sells a product on credit. The revenue from the sale would be recognized in the period when the product is sold, even though the cash will not be received until later. This is because the company has already earned revenue from the sale. On the other hand, if a company pays for goods in advance, the expense would be recognized in the period when the goods are purchased, even though the cash has not been paid yet. This is because the company has already incurred the expense.
Explain the criteria underlying the presentation of financial statements and understand accounting policies.
The basic criteria for the presentation of financial statements are that they should provide a “true and fair view” of the company’s financial position, performance, and cash flow. This means that the statements should be accurate and complete, and should reflect the company’s accounting policies.
The main purpose of financial statements is to provide information that is useful to investors, creditors, and other stakeholders in making decisions about whether to invest in, lend to, or otherwise support the company. Financial statement users need reliable information in order to make informed judgments about a company’s creditworthiness, overall risk level, and potential future profitability.
Assignment Activity 2: Preparation of Financial Accounts:
Understand the terms used in financial statements, the accounting equation, and the dual nature of transactions.
There are a few key terms that you should understand when reading financial statements:
- Assets: Anything of value that a company owns. This can include cash, investments, property, and equipment.
- Liabilities: anything owned by a company, including money owed to suppliers, employees, taxes, and loans.
- Equity: the difference between a company’s assets and liabilities. This is also often referred to as “shareholders’ equity” or “owner’s equity.”
- Revenue: the total amount of money earned by a company in a given period of time.
- Expenses: the costs incurred by a company in order to generate revenue. This can include things like salaries, rent, and advertising.
There are three terms in accounting that you need to understand: assets, liabilities, and equity.
- Assets are anything of value that a business owns. This could be cash, inventory, land, buildings, or equipment.
- Liabilities are any debts or obligations a business owes. This could include money owed to suppliers, loans from the bank, or taxes owed to the government.
- Equity is the difference between assets and liabilities; it represents the ownership interest that shareholders have in a company.
The dual nature of transactions means that every financial transaction has two effects: it affects at least two accounts and it has a corresponding debit and credit entry. For example, when a company receives cash from a customer, the company’s asset account Cash increases, and the customer’s liability account Accounts Receivable decreases.
Record transactions in T accounts and balance accounts.
Assuming you would like tips on how to record transactions in T accounts and balance accounts, here are a few helpful pointers:
- When recording transactions in T accounts, be sure to include all relevant information such as date, amount, and description. This will make it easier to track your finances and see where your money is going.
- To balance your accounts, simply total up all the debits and credits for each account and make sure they match. If they don’t, there’s likely an error somewhere that needs to be corrected.
- Keeping accurate records of your transactions and regularly balancing your accounts is crucial for maintaining financial stability. By doing so, you can catch errors early on and avoid any major financial disasters down the road.
Extract a trial balance and prepare a statement of comprehensive income and statement of financial position.
To extract a trial balance, you will need to gather your company’s financial information. This includes your income statement, balance sheet, and any other relevant documents. Once you have this information, you can begin creating the trial balance.
A trial balance is a list of all the account balances in your ledger. This includes both debit and credit accounts. The purpose of a trial balance is to ensure that your ledger is in balancing debits and credits. If there are any discrepancies, you will need to adjust your entries accordingly.
Once you have created the trial balance, you can then use it to prepare a statement of comprehensive income and a statement of financial position. These statements provide crucial insights into your company’s financial health. The statement of comprehensive income shows your company’s total revenue and expenses for a given period of time. The statement of financial position shows your company’s assets, liabilities, and equity at a specific point in time.
Distinguish between an accrual basis of accounting and a cash basis.
The key difference between an accrual basis of accounting and a cash basis is that the accrual basis of accounting recognizes revenue when it is earned and expenses when they are incurred, while the cash basis of accounting recognizes revenue when it is received and expenses when they are paid.
Another difference is that the accrual basis of accounting results in a more accurate picture of a company’s financial condition because it includes income that has been earned but not yet received (e.g. accounts receivable), as well as expenses that have been incurred but not yet paid (e.g. accrued liabilities).
The cash basis of accounting is simpler and less expensive to maintain, but it can result in a distorted view of a company’s financial condition since it only includes transactions that have actually occurred.
Calculate accruals and prepayments.
To calculate accruals and prepayments, you will need to use the following formula:
Accruals = ( ending balance of prepaid expenses + beginning balance of accrued expenses ) / 2
Prepayments = ( ending balance of accrued revenues + beginning balance of unearned revenues ) / 2
In order to calculate accruals and prepayments, you will need to know the ending balance and beginning balance for each of these accounts. This information can be found on your company’s balance sheet.
Understand the meaning of depreciation and calculate straight lines and reduce balance depreciation.
Depreciation is an accounting method of allocating such costs to a period in which the asset is used. Therefore, depreciation expense is recorded as a reduction in revenue in the income statement. There are different depreciation methods, but the two most common are straight-line and reducing balance.
To calculate straight-line depreciation, you divide the total cost of the asset by its useful life (in years). For example, if you have a machine that costs $100,000 and has a 5-year useful life, your annual straight-line depreciation expense would be $20,000 ($100,000 / 5 years).
Reducing balance depreciation differs from straight-line in that it applies a higher percentage of depreciation to the earlier years of an asset’s life. This is done in order to account for the fact that the value of assets declines over time. For example, if you have a machine that costs $100,000 and has a 5-year useful life, your annual reducing balance depreciation expense would be $27,273 ($100,000 / 3.6 years).
Record the disposal of an asset and calculate the profit or loss on disposal.
When an asset is disposed of, the profit or loss on disposal is calculated by subtracting the book value of the asset at the time of disposal from the proceeds of disposal. If the proceeds of disposal are greater than the book value, then there is a profit on disposal. If the book value is greater than the proceeds of disposal, then there is a loss on disposal.
The following example will help to illustrate how to calculate profit or loss on disposal. Suppose an asset with a book value of $1,000 is disposed of for $1,200. The profit or loss on disposal would be calculated as follows:
$1,200 – $1,000 = $200
This would result in a $200 profit on disposal.
Now suppose that the same asset is disposed of for $900. The calculation would be as follows:
$900 – $1,000 = -$100
This would result in a $100 loss on disposal.
Record the purchase of an asset.
On March 1, 2019, ABC Company purchased a new delivery truck for $35,000. The truck will be used to deliver products to customers. The company expects to use the truck for six years and then sell it for $5,000. The truck will be depreciated using the straight-line depreciation method with a five-year life and no salvage value.
Under the accounting rules, the cost of an asset is recorded as an expense in the period in which it is purchased. In this case, the cost of the truck is recorded as an expense on March 1, 2019. This expense will be gradually reduced over the six-year life of the truck through depreciation. At the end of year five, when the truck is sold, any remaining value will be recorded as a gain or loss on the sale.
Assuming that the truck is purchased on January 1, 2019, the journal entry would be as follows:
Accumulated Depreciation-Truck -5,000
Depreciation Expense-Truck 2,000
This entry records the purchase of the truck and the associated depreciation expense for the year. The Accumulated Depreciation account will be increased by $5,000 (the cost of the truck is less than the depreciation expense for the year). This account is used to track the total depreciation expense for a particular asset. The Depreciation Expense account will be increased by $2,000 (the depreciation expense for the year). This account is used to track the current period’s depreciation expense.
Assignment activity 3: Financial Analysis:
Understand the purpose of financial statement analysis.
The purpose of financial statement analysis is to help you better understand a company’s financial situation. This includes looking at things like the company’s income statement, balance sheet, and cash flow statement. By understanding these documents, you can get a better sense of how well the company is doing financially and what areas may need improvement. Financial statement analysis can also be used to compare different companies in order to see which one is performing better.
Calculate liquidity, gearing, profitability, activity, and investor ratios.
There are several different ratios that you can use to assess a company’s financial health, including liquidity ratios, gearing ratios, and investor ratios.
Liquidity ratios measure a company’s ability to pay its short-term debts. The most common liquidity ratio is the current ratio, which measures a company’s current assets against its current liabilities.
Gearing ratios measure a company’s debt levels relative to its equity. A high gearing ratio indicates that a company is more leveraged, and therefore may be more at risk of defaulting on its loans.
Profitability ratios measure a company’s ability to generate profits. The most common profitability ratio is the net profit margin, which measures how much profit a company makes on each dollar of sales.
Activity ratios measure a company’s ability to generate sales and turnover. The most common activity ratio is the inventory turnover ratio, which measures how quickly a company sells its inventory.
Investor ratios measure how attractive a company is to investors. The most common investor ratio is the price to earnings ratio, which measures the company’s stock price relative to its earnings per share.
Interpret the information given in ratios.
When interpreting ratios, it is important to consider the context in which the ratio is given. Ratios can be used to compare two different things or to track changes over time. When comparing two things, it is important to make sure that the items being compared are of the same type. For example, you wouldn’t compare apples to oranges because they are different types of fruit. However, you could compare apples to apples or oranges to oranges. To track changes over time, it is important to make sure that the Ratios are consistent over time. For example, if you are tracking the ratio of dogs to cats in a shelter, you would want to make sure that you use the same method of counting every time so that the ratios are comparable.
Understand the limitations of ratio analysis.
There are several limitations to ratio analysis that users should be aware of, including:
- Ratios only provide a snapshot in time and do not necessarily reflect the long-term financial health of a company.
- They can be easily manipulated by management through creative accounting practices.
- Different companies in different industries will have different ideal ratios, making comparisons difficult.
- Ratios do not take into account qualitative factors that can impact a company’s performance.
- They can be used to exploit investors by masking a company’s true financial condition.
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