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Week 2 forum

I personally disagree with this logic as the service provision for the payments made extends over a period of years. This shows that this amount should contribute to the overall state of financial affairs of the given years and allocating it to only the first year leads to an untrue state of affairs in those years as the revenue of the first year will be highly overstated and the consequent years’ financial position will be understated. This amount of money should be allocated just as depreciation is allocated; it should contribute to the financial position of all the years that the contract covers to give the correct state, as the services rendered will cover all the years (Needles, Powers, & Crosson, 2011). This ensures that there is no shortage in the subsequent years with credits being higher than debits due to the shortage created by the unrecorded payments. What I would do is that I would debit the entire amount in the cash receipts but then credit the amount equating the services not yet delivered as balance carried down, as I would do in bank overdraft. This would bring about a balance with services equaling the amount debited to their account. This amount I would then debit in the following years statements as balance brought forward and credit the amount equaling the accrued services at the end of the financial year with the amount being debited in the consequent years until when the contract ends. The assumptions that Main Street should consider is that in the delivery of these services, costs are incurred and in order to calculate the profit and loss of each year the income and expenses incurred should be considered. Allocating the entire amount to the first year leads to the expenses in subsequent years being higher than the income as there is income that is not considered (Waybright and Kemp, 2010). Following management’s decision is not ethical since it overstates the company’s financial state of affairs hence giving a misleading view to the public who may use this information in investing in the company.

Reference

Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-Western Cengage Learning.

Waybright, J. & Kemp, R. S., (2010). Financial accounting. Upper Saddle River, N.J.: Prentice Hall. Print.

Week 3 forum

Materiality is a principle in accounting, which states that information included in financial statements should only be that which is significant to the users of that report (Needles, Powers and Crosson, 2011). It dictates what should be included in a financial report depending on who the users are. In the case given, loss in inventory would be significant to the management as inventory contributes to the final income of the company which will lead to an imbalance is the balance sheet. Considering it is the main source of income, the level of significance it holds is high to the management. Loss of inventory is also significant in that it shows that the level of security in the stores is not up to scale hence the management realizes that it has a problem to solve in security upgrading. Loss in inventory however is not of much significance to the auditors as their focus is the processes that occur in the financial transactions and not the figures involved in the stock kept by the company in the stores. Auditing is there to ensure transparency and efficiency in the accounting systems in an organization (Libby, Libby and Short, 2011). Therefore, the findings in this company may concern the auditors as well but not at the same level as it will concern the management that is in charge of operations and profit maximization in a company. I think that the amount of loss in inventory is a little significant though compared to the overall annual sales. It makes little impact, as this is a large corporation.

Reference

Libby, R. & Libby, P. A. & Short, D. G., (2011). Financial accounting. New York: McGraw-Hill

Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-Western Cengage Learning.Week 4 forumIn this process, different activities are allocated to different people to ensure that transparency and truthfulness occurs. This applies the principle of separation of duties where different people are responsible for different steps in the same process ensuring that no one person can complete the entire process by themselves (Needles, Powers & Crosson, 2011). The cashier is allocated the duty of authorization and recording of transaction. This ensures accountability as each ticket number is entered and can be retrieved as evidence. The keeping of records ensures that each transaction is traceable. Secondly, the ticket taker takes the ticket, cuts them by half and remains with one part. This ensures that everyone passes through the cashier, as at this level one cannot gain entry without the ticket. Second, it ensures traceability as that part of the ticket can be traced to the records entered in the system. This ensures that physical controls are implemented to ensure credibility (Ciulla, Marrin and Solomon, 2007). The usher on the other hand ensures sound personnel practices are implemented. This is because the usher interacts with the customers when showing them to their seats. Even if the cashier issued a ticket to a friend and failed to record, the number of tickets with the ticket holder would fail to match with the number of entries in the system by the cashier. If the ticket holder allowed in friends and the numbers of seats in the theater were limited then he would be caught if a person with a ticket missed a seat.Reference

Ciulla J. B. & Martin C. W. & Solomon R. C., (2007). Honest work: a business ethics reader. New York: Oxford University Press. Print.

Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-Western Cengage Learning.Week 5 forumCaldwell’s actions are unethical as she misstates the amount of debts written off hence giving the wrong state of accounts payable. She takes this action knowing very well that a major employing company in the area will be lying off most people hence affecting their ability to pay the debts. This amount to fraudulent misrepresentation (Needles, Powers and Crosson, 2011), which is legally wrong, and on realization, the financial company can sue her. The financial lender could end up harmed financially by her actions, as she might not be able to repay the loans due to the bad debts arising from her accounts payable account that is a major asset in her company. The fact that that her company’s sales have been declining indicates her inability to pay off loans. Materiality is applicable in preparation of financial statements hence by deciding which information is more material to the user there will be more clear representation in the data. In this case, the magnitude of loss from uncollectible accounts is significant to a financial lender hence by stating the correct amount the lender is able to decide whether the risk of lending is worth the return gained hence avoiding future clashes on realization of the misrepresentation by the borrower. Accuracy in loss estimation is also important as it guides the owner of the business as to whether to continue using a certain system of transactions based on the trend, for example the system of selling on credit (Zeff and Dharan, 1994).Reference

Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-Western Cengage Learning.

Zeff, S. A. & Dharan, B. G., (1994). Readings and Notes on Financial Accounting: issues and controversies. New York: McGraw-Hill. Print.Week 6 forumOn following the chief financial officers decision, the company’s cash flow will be affected, as land on being allocated the higher amount will be seen to be of higher value. This will lead to the income tax on the land being higher in value than if the land was allocated a less percentage of the purchase price (University of Minnesota, 1929). On the other hand, if the percentage allocated to land is low, the amount credited on depreciation in the balance sheet will be higher hence affecting the net flow of cash in the company. On following the second decision though, there will be realization on annual tax savings since the land value is lower hence the taxation on it will be lower. Furthermore, the high value of the land will lead to a higher value in the financial statement and on the goodwill of the land. Ethically land should be allocated the lesser percentage as it ensures that the correct value of taxation on land and there is no overvaluation of land. This decision however will not bring about the most profit in the company, which is the ultimate goal of every company (Needles, Powers and Crosson, 2011). On taking the decision by the chief financial officer, future purchasers of the land will be affected, as the goodwill of the land will be overstated hence they will be overcharged. Consumers of the produce of the land will also be affected, as the prices charged on the goods they purchase will be higher to cover the income tax on the land.ReferenceNeedles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-Western Cengage Learning.University of Minnesota. Dept. of Agriculture. (1929). Land valuation. Mineapolis. Short course series.Week 7 forumCommon stock has many advantages for the issuing company as compared to bonds. One of the advantages they offer is safety especially if the issuing company faces financial trouble. This is because if the company becomes bankrupt the company is not entitled to reimburse the stockholders for the losses unlike bonds that are considered a debt to the company. Another advantage is that if the company is experiencing financial difficulties it can reduce or eliminate dividends to the stockholders since the dividend is not fixed like in bonds (Fama and French, 1988). Yet another advantage of issuing common stock is that the company is not expected after a certain period to return the face value of the stock to the stockholders unlike in bonds where after a period of say twenty years the company is required to return the face value of the bond to the holders of the bond. In stock issuing, there is voting rights of the stockholders, which is advantageous for the company as it creates trust with the investors. Since stockholding represents ownership stockholders are the last to be paid hence the issuing company is able to pay off its operational cost first before issuing any money to the stockholders. One disadvantage to the company however is any money after payment of the running expenses must be shared among the shareholders unlike bond issuing where there is a fixed system of distributing profits. Hence, if the profit is high the company using bond issuing will remain with a higher profit margin. Another disadvantage is that the investors are involved in decision making unlike in bond issuing where the bondholders do not participate in the company’s decision-making.ReferenceFama, E. F., French, R., (1988). Forecasting returns on corporate bonds and common stocks. Los Angeles, Calif: Anderson Graduate School of Management, University

Needles, B. E., Powers, M., & Crosson, S. V. (2011). Principles of accounting chapters 1-13 (11th ed.). Mason, OH: South-.Western Cengage Learning.

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