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Accounting Financial Analysis Report

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University of Strathclyde

   

Accounting financial analysis report (AG911)

   

Added on  2020-02-24

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The following document discusses Accounting Financial Analysis, in which we will address subjects such as liability recognition and its impact on profit overstatement, as well as the repercussions of accounting failing to capture information. Liability could be any obligation that is required to be paid off by sacrificing the economic benefits. For instance, a bank loan obligates the company to pay the installments in a fixed duration along with some interest.

Accounting Financial Analysis Report

   

University of Strathclyde

   

Accounting financial analysis report (AG911)

   Added on 2020-02-24

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Running head: ACCOUNTING FINANCIAL ANALYSIS REPORTAccounting financial analysis reportName of the studentName of the universityAuthor note
Accounting Financial Analysis Report_1
1ACCOUNTING FINANCIAL ANALYSIS REPORTTable of ContentsB. Recognition of liabilities and its impact on overstatement of profit.....................................2C. Consequences if accounting fails to capture the information................................................3Reference....................................................................................................................................4
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2ACCOUNTING FINANCIAL ANALYSIS REPORTB. Recognition of liabilities and its impact on overstatement of profitThe liability is defined as the obligation or financial debt of an organization thatcreates during the operation course of business. Liabilities are paid-off through the economicbenefits like cash, services or goods. It is shown under the liability side of the balance sheetand includes mortgages, accounts payable, accrued expenses and deferred revenue. Liabilitiesare crucial part of the business operation as they are used for paying the big expansions andfinance the operations. They also assist in carrying out the business transactions moreefficiently. Apart from fulfilling the liability definition, the conceptual framework alsosuggested that the recognition criteria for liability shall be met before showing the liabilityunder the balance sheet. The recognition criteria are as follows –The value or the cost of the obligation must be able to be measured reliableThe outflow of the resources generating economic benefits like cash from theorganization must be probable (Michels 2017).The 1st test assures that only the liabilities that are able to be measured objectively areidentified under the financial statement. If the 2nd test is taken into consideration, it is rationalto identify the liability only if it is probable that the organization will be obliged to settle it. Ifthe obligation fulfils the definition criteria of a liability, however, fails to fulfil therecognition criteria, it will be classified as the contingent liability. A contingent liability is notshown as liability under the financial statement rather it is disclosed under the notes.If the liability is recognized at lower amount than the actual, then it will definitelyoverstate the profits as it will enhance the artificial earning. Further, liabilities can berecognised on various basis like progressively or full recognition at once. If the full amountfor liabilities is not recognized in the balance sheet, it will enhance the profit by that amount
Accounting Financial Analysis Report_3

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