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Accounting and Finance for Executives – UUAC5300

   

Added on  2020-04-13

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Running head: ACCOUNTING FINANCE FOR EXECUTIVEAccounting Finance for ExecutiveName of the Student:Student’s ID:Lecturer’s Name:Author’s Note

ACCOUNTING FINANCE FOR EXECUTIVE1Table of ContentsAnswer to Question 1......................................................................................................................2Cash Versus Accrual Basis of Accounting..................................................................................2Question 2........................................................................................................................................4Financial Statement Analysis......................................................................................................4Question 2........................................................................................................................................6Requirement a:.............................................................................................................................6Requirement b:.............................................................................................................................7Requirement c:.............................................................................................................................9Workings..........................................................................................................................................9Reference.......................................................................................................................................17

ACCOUNTING FINANCE FOR EXECUTIVE2Answer to Question 1Cash Versus Accrual Basis of Accounting The process of accounting is a dynamic process wherein the recording and recognition oftransactions are done on the basis of two method which are generally used. These methods areCash basis of Accounting and Accrual basis of Accounting. These methods are used widely usedin every accounting business. In cash basis accounting system, all the transactions are recorded and presented on thebasis of cash as and when such cash are received. In accrual system of accounting the revenue isrecorded when it is actually earned and expenses are recorded when such expenses are actuallyincurred. Accrual basis of accounting does not depend on whether cash is received or paid. Thecore difference between cash basis of accounting and accrual basis of accounting is that thetiming of the transactions is different in each case. The difference which arises between cashbasis of accounting and accrual basis of accounting is mainly due to the difference in timing ofrecognition of elements of the financial statements (Tiron Tudor and Mutiu 2012). In business,normally accrual basis for recording of transactions are preferred as transactions are recognizedas and when such transactions take place. However, certain businesses are there which do nothave a high revenue or turnover and has simple transactions to record follow cash basis ofaccounting. Accrual basis Accounting of transactions are used by firms which have a highturnover and also there is the cash that in order to get the financial accounts audited the companyneeds to prepare the financial accounts on the basis of accrual system of recording transactions(Bergmann 2012).The benefits of using cash method of recording transactions is that it is a simple methodand easy to implement and follow. Moreover, it allows the business to keep a track of the cashinflows and outflows in a business (Irwin 2012). The method of cash basis also has its impact onthe amount of tax which is to be paid by the business considering the amount of cash which isbanked. In the case of accrual method, the basic advantage is that the matching of income andexpenses as and when they occur. Accrual method allows the business to estimate clearly thefuture profits which can be earned by the business (VanZante 2013). Alpha ltd is engaged in the business of providing online services to airlines which issituated in New Zealand. The company recognizes transactions on accrual basis and thedifference which arises in the value of cash basis and accrual basis is due to the treatment of

ACCOUNTING FINANCE FOR EXECUTIVE3depreciation which is $ 96,000 and also due to the unallocated revenue which is of amount43,000. The management of the company follows accrual basis which is very useful for matchingthe revenues and expenses of the company. The net profit which is generated by the company isestimated following the accrual basis of accounting and the cash generated from operations iscalculated following cash basis of accounting. Both the figures are necessary as they are used formatching the revenues and also clearly pointing out the transaction which have caused thedifference in revenues on the basis of cash and accrual accounting.The responsibility of the external auditor is to ensure that the financial statement isshowing true and fair view. The role of the external auditor is to investigate the annual reports ofthe company and form an opinion whether annual reports of company are fairly represented ornot. The main responsibility of the auditor is to analyze the financial reports of the company andalso form an opinion on the financial statement of the company (Davidson, Desai and Gerard2013). In many cases the management of the company is of the view that the auditor isresponsible for detecting fraud and error which is not the case and therefore the auditor is anindependent person who is responsible for the analysis of the financial statements of thecompany in order to form an opinion on the financial statement of the company.Therefore, from the above discussion it is clear that an auditor is responsible to ensurethat the financial statements are fairly represented and the shareholders are protected from anymanipulations. The audited balance sheet of the company is the basis on which the potentialinvestors of the company decide whether or not to invest in the shares of the company. Theauditor is responsible to act in the best interest of the shareholders of the company and determinewhether the financial reports of the company is showing true and fair view or not. The auditorsof the company are to also ensure that the there is no omission or manipulation in the financialstatement of the company.Question 2Financial Statement AnalysisAs per the case study provided in the assignment, the annual reports of Air New Zealandis given for the year 2016. The analysis of the financial statement is to be done, on the basiswhich the questions given in the assignment is to be solved.

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