Accounting Users And Characteristics Of Financial Statement Accounting Essay

1.0 IntroductionSai Kim, T. et al. , 2001, pg 1, said that report is the procedure of recording, reporting, and construing pecuniary information pertaining to an institution. count oning is frequently baffled with book-keeping, which involves merely the recording of sparing events and is hence merely maven subdivision of the accounting procedure .Undertaking 1 is ab pop the antithetical users and their demands for Continental hold in financial program lines. Accounting users change integrity into two users, it is internal users ( mass within the organisation ) and besides external users ( people outside the organisation ) who use history to deduce fiscal information for their demands. overly that, the features of these fiscal financial statements entrust supply utile information to the users.Continental Limited has an authorized portion nifty of 1 million ordinary portions RM1 each. It operates sweeping and retail concern of merchandising a con sumers merchandise. In beneathtaking 2, prepare the income statement and poise rag week of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by caller-out manager or publication. Income statement it is do by company at the terminal of each twelvemonth to cipher the top income and loss incurred in concern during the twelvemonth. While, vestibular sense sheet it is made by company at the terminal of each twelvemonth to enter the majuscule, assets, and liabilities of company at the terminal of the twelvemonth.In chthonictaking 3, prepare the income statement and counter sense of balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication. Distribution cost normally defined as the be incurred to present the merchandise from the production unit to the terminal user. Besides that, administrative disbursals is consult to the costs of runing a concern that are non straight attributable to the p roduction of goods or run.In undertaking 4, must establish on the income statement and balance sheet made in undertaking 2 and 3. Then, cipher the appropriate accounting rations for twelvemonth stoping 31 Dec 2010 and besides necessitate to compare them with the intentness norms provided to measure the profitableness and liquidness of Continental Limited.2.0 Accounting users and Features of fiscal statementAccounting information helps users to do better fiscal uses in the organisation. There have two different types of users in the fiscal information, there are internal users ( people within the organisation such as direction, employees, and proprietors ) and besides external users ( people outside the organisation such as creditor, revenue enhancement governments, investors, and clients ) who use history to deduce fiscal information for their demands.There besides have five regulative features of fiscal statement that will supply utile information to the users. These standards must be sateed to do the fiscal statements and histories that are utile to the users. Therefore, company should seek to fulfill the undermentioned standards when choosing and following the accounting constructs in fixing concern fiscal histories.2.1 Accounting usersThere have five different users and their demand for Continental Limited fiscal statements. The fiscal histories supply a wealth of information that is utile to assorted users of fiscal information. Investor is worried about hazard and return in relation to their investings. They select accounting information to cognize whether it is deserving for them to put in a concern or purchasing portions of the company.In add-on, client and debitor are the people who purchase goods and services provided by the company. They deficiency accounting information about the company s fiscal stableness to guarantee that the company is a unafraid start out of supply and no danger of persisting to shut down. As a clients of the company s merchandises, they have a long-run concentration in the company s scope of the merchandises and services. They may even hold to depend on the concern for certain merchandises and services.Besides that, a director is the individual appointed by the company proprietors to responsible for planning and directing the work of a group of persons, supervising the daily work of the company. They need accounting information about the company s fiscal state of affairs as it is presently and as it is expected to be the hereafter to enable them to pull off the concern expeditiously and to do effectual control and planning determinations.Another accounting user is providers or creditor, the people who provide merchandising goods and services to the company on recognition. So, they need accounting information about the company s ability to pay its debts for guaranting their aggregation from the company. The creditors include providers every bit good as loaners of the finance such as Bankss.Furt hermore, employee of the company is people employed by the company to transport out concern activities. Therefore, they need accounting information about the company s fiscal state of affairs. This is because, their future callings and the size of their rewards and wages depend on it. Therefore, employees need information refering the stableness and go oning profitableness of the organisation.In the decision, accounting users is of here and now to the organisation. This is because, the fiscal histories supply information that is utile to assorted users of fiscal information.2.2 Features of fiscal statementFirst is understandability, it means that the fiscal statements must easy to comprehensible. Users of fiscal statements are assumed to hold adequate cognition of concern, economic activities and accounting to analyze the information decently. Harmonizing to Helium.com ( 2010 ) , said that understandability ensures that a user equipped with the basic cognition can fuck informatio n refering to the public presentation and fiscal place of an endeavor .Besides that, the feature of the fiscal statement is compare. The fiscal histories made based on accounting constructs should be comparable within the entity and across entities. Comparability within the entity is means that the fiscal statements can be compared with the old twelvemonth fiscal statements of the same company. While, comparison across entities is means the fiscal statement can be comparable with the history of other company.Another feature of the fiscal statement is relevancy. The fiscal histories nimble based on accounting constructs and policies should show relevant fiscal information which is capable of act uponing the economic determination of the users. Therefore, fiscal statements are for users to do economic determinations, the information must be relevant to the determinations that those users have to do. In add-on, relevant fiscal statements are seasonably, if the histories are prepared to supply required information in clip, it is relevant to the determination devising of the user. Contrary, if the histories are no prepared to supply information in clip, it is non relevant to the determination devising of the user.Furthermore, the feature of fiscal statement is dependability. Fiscal history must show dependable information to the users for determination devising. Harmonizing to SpiffyD ( 2012 ) , reference that harmonizing to ACCA, dependable information does non incorporate mistakes that affect the economic determinations of users, nor is it biased or partial. This property is linked to faithful representation, since users should be able to handle with it as such. Users have assurance in dependable fiscal statements. Such statements are non misdirecting or intentionally constructed in a mode that could skew determinations or perceptual experience of the fiscal place or public presentation of an entity. It is deserving observant that the deductionance of audi ting is increasing because it reinforces dependability .In add-on, the feature of the fiscal statement is accuracy. The fiscal history must supply accurate fiscal information to the users for determination devising. The ground is, the inaccurate history information will take to inaccurate determination made by the user.3.0 Income Statement and relaxation SheetIncome statement it is made by company at the terminal of each twelvemonth to cipher the net income and loss incurred in concern during the twelvemonth. Harmonizing to Steven Mark, L. , 2003, pg 25, he said that the income statement besides referred to as a profit-and-loss statement, summarizes the company s utter(a)s, disbursals, additions, and losingss for a occlusive of clip, such as three months or one twelvemonth . While balance sheet it is made by company at the terminal of each twelvemonth to enter the capital, assets, and liabilities of company at the terminal of the twelvemonth.3.1 Working for note inquiry a to h Closing gunstock should be recorded at cost or net resale jimmy which one is lower. Since cost RM65000 & lt net resale value RM70000, the cost RM65000 should be shuting stock value put in the trading history of income statement and under the current plus in balance sheet.Cash AccountRM RM uncouth saless 5000 Purchase 4000 stationery 700Electricity 3005000 5000Gross saless in trading history of income statement = RM360000 from TB + RM5000 = RM365000Purchase in merchandising history of income statement = RM200000 from TB + RM 4000= RM 204000letter paper as disbursal put in P/L history of income statement = RM7000 from TB + RM300 = RM7300Gross saless committee as disbursal put in P/L history of income statement = RM18000 paid from TB + RM1500 accrued at terminal of twelvemonth = RM 19500Then, accrued utter(a) revenues committee RM1500 is recorded under the current liability in balance sheetOffice wages as disbursal put in P/L history of income statement = RM28000 paid from TB RM 2 000 prepaid at terminal of twelvemonth = RM26000Then, prepaid office wage RM2000 is recorded under the current plus in balance sheetDebtor AccountRM RMBalance b/d 75000 ( ) Bad debts 5000Balance c/d 7000075000 75000Balance b/d 70000Bad Debts AccountRM RMDebtor 5000 P/L history 5000( Bad debts as disbursal put in P/L history )Provision for bad debts shuting balance = 10 % ten Debtor shutting balance RM70000= RM7000Provision for Bad Debts AccountRM RM31 Dec 2010 Closing balance c/d 7000 1 Jan 2010 Opening balance b/d 5000Increase different 2000( As disbursal put in P/L history )7000 70001 Jan 2010 Balance b/d 7000and degree Fahrenheit )Vehicles AccountRM RMBalance b/d 300000 Vehicles Account a/c ( cost sold ) 50000Balance c/d 250000300000 300000Balance b/d 250000Provision for Depreciation on Vehicle AccountRM RMVehicle disposal history 12500 1 Jan 2010 Opening balance b/d 60000( Cost sold RM50000 x 5 % x 5 twelvemonthfrom 1 Jan 2005 to 1 Jan 2010 )31 Dec 2010 Balance c/d 60000 Deprec iation as disbursal put in P/L 12500history( Vehicles shuting balanceRM250000 x 5 % )72500 725001 Jan 2011 Balance b/d 60000Vehicle Disposal AccountRM RMVehicle cost sold 50000 Provision for derogation on 12500vehicle soldReturns from disposal of vehicle 35000 discrepancy for wrong on disposal of 2500vehicle( As disbursal put in P/L history )50000 50000Provision for Depreciation on premise AccountRM RMBalance c/d 5400 1 Jan 2010 Opening balance b/d 40000Depreciation as disbursal put in 14000P/L history( Premisess cost from TB RM350000x 4 % )54000 54000Balance b/d 54000g ) tax income 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 sheetH ) Proposed divided to be deducted from net net income at the underside of income statement = 2 % x RM500000 Share capital from TB = RM one C00Then, the proposed divided RM10000 is recorded under current liabilit y in balance sheet.3.2 Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usageIncome Statement of Continental Limited for stratum Ending 31 Dec 2010 for home(a) UseRM RM RMGross saless 365000less(prenominal) Return inward 10000Net receipts revenues 355000Less Cost of swinish revenuesOpening stock 50000+ Purchases 204000 revenue enhancement return outwards 15000+ Carriage inwards 5000 194000Less Closing stock 65000 179000Gross net income 176000Add IncomeDividend received 5000181000Less ExpenseStationery 700Office electricity & A H2O 7300Office salaries 26000Gross saless committee 19500Bad debts 5000Addition in proviso for bad debts 2000Loss on disposal of vehicle 2500Depreciation on vehicles 12500Depreciation on premises 14000Vehicle expense 12000Interest charges 3000 104500Net net income 76500Less tax charge 15300Less Proposed dividend 10000Net income for the twelvemonth 51200Add Retained net incomes brought forth 100000Retained net inc omes carried frontward 1512003.3 Balance sheet of Continental Limited as at 31 Dec 2010 for internal usageBalance Sheet of Continental Limited as at 31 Dec 2010 for Internal UseRM RMFixed assets / Non-current assetsOffice premises at cost 350000( ) Provision for depreciation on premises 54000 296000Vehicle at cost 250000( ) Provision for depreciation on vehicle 60000 190000Long-run investings 100000586000 period assetsClosing stock 65000Debtors 70000( ) Provision for bad debts 7000 63000Bank 42000Prepaid office wage 2000 172000758000Issued portion capitalShare capital 500000Add ReserveRetained net incomes carried frontward 151200Stockholders equity 6512000Add Long-term liabilities / Non-current liabilityLoan 55000Add Current liabilitiesCreditors 25000 accumulated piggish revenues committee 1500Accrued revenue enhancement 15300Proposed divided 10000 518007580004.0 Distribution costs and Administrative disbursalsDistribution costs besides known as scattering disbursals. Distribu tion cost normally defined as the costs incurred to present the merchandise from the production unit to the terminal user. The distribution cost is points such as gain revenues staff s wages and committee, passenger car outwards, depreciation of bringing new waves, advertisement and show disbursals.Harmonizing to Readyratios.com ( 2011 ) , reference that administrative disbursals refer to the costs of runing a concern that are non straight attributable to the production of goods or services. Administrative disbursals are related to the organisation as a whole as opposed to the single sections . Administrative disbursals consist of such points as wages, legal and accounting charges, the depreciation of accounting machinery, public-service corporations, rent, and housework charges.4.1 Classify the disbursals into distribution cost and administrative disbursalsDistribution costs Administrative disbursalsRM RMStationery 700Office electricity 7300Office salaries 26000Gross saless c ommittee 19500 Bad debts 5000 Addition in proviso for bad debts 2000 Loss on disposal of vehicle 2500 Depreciation on vehicle 12500 Depreciation on premises 14000Vehicle disbursals 12000 Entire 53500 480004.2 Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for external coverageIncome Statement of Continental Limited for Year Ending 31 Dec 2010 for External ReportingRM RMEmployee turnover 355000Cost of gross revenues 179000Gross net income 176000Distribution cost 53500Administrative disbursals 48000101500Operating net income 74500Dividend received 500079500Interest charges 3000Net income on ordinary activities before revenue enhancement 76500Taxation charge 15300Net income on ordinary activities after revenue enhancement for the twelvemonth 61200Proposed dividend 10000Retained net income for the twelvemonth 51200Retained net income bought frontward 100000Retained net income carried frontward 1512004.3 Balance sheet of Continental Limited for the twelvemon th stoping 31 Dec 2010 for external coverageBalance Sheet of Continental Limited for the Year Ending 31 Dec 2010 for External ReportingRM RM RMFixed AssetssTangible AssetssPremisess 296000Vehicle 190000486000InvestingLong term investing 100000586000Current AssetssStock 65000Debtors 63000Prepaid office wage 2000130000Cash at bank 42000172000Less Creditors Sums Falling Due Within One YearCreditor 25000Accrued gross revenues committee 1500Accrued revenue enhancement 15300Proposed dividend 10000( 51800 )Net current Assetss 120200Entire Assets Less Current Liabilities 706200Less Creditor Sums Falling Due After more Than One YearLoan ( 55000 )651200Capital and ReserveCalled up portion capital 500000Net income and Loss history 1512006512005.0 Accounting ratiosAccounting ratios is used to specify of import relationship between the figures shown on a balance sheet, in a net income and loss history or in any other portion of accounting organisation. Therefore, accounting ratios shows the rel ationship between accounting informations.5.1 Table of ratio computationRatio with expression Ratio computation for twelvemonth 2010 Industry normPercentage of grossnet income on gross revenues= Gross net income x 100 176000 ten 100 = 49.58 % 30 %Net gross revenues 355000Percentage of operatingnet income on gross revenues= Operating net income x 100 74500 ten 100 = 20.99 % 18 %Net gross revenues 355000Capital employed = Closing capital + Long-term liabilities = ( Fixed assets + Current assets ) -Current liabilities= ( RM586000+RM172000 ) -RM51800= RM758000-RM51800= RM706200Tax return on capitalemployed ( ROCE )= ( Net net income + Interestcharges ) x 100 76500 + 3000 x 100 9 %Entire assets Current liabilities 758000 51800= 79500 tens 100706200= 11.26 %Current ratio= Current assets = 172000 2 1Current liabilities 51800= 3.32 1Stock turnover= Cost of gross revenuesAverage stock value= Cost of gross revenues = 179000( Opening stock + Closing stock ) / 2 ( 50000 + 65000 ) / 2= 1790005 7500=3.11timesStock turnover period365 yearss = 365 yearss 90 yearssStock turnover 3.11 times= 117.36 yearssDebtor aggregation period= Debtor = RM63000Net recognition gross revenues RM365000 RM 10000= Debtor = RM63000Gross saless return inwards RM355000= 0.1777 1Debtors collection period= Debtor ratio x 365 yearss =0.177 x 365 yearss 45 yearss=64.6 yearssCreditor ratio= Creditor = 25000Net recognition purchase 204000 15000= Credit = 25000Purchase Tax return outwards 189000= 0.132 1Creditors payment period= Creditor ratio x 365 yearss = 0.132 ten 365 yearss 60 yearss= 48.18 yearss5.2 Profitableness of Continental LimitedThe per centums of gross net income on gross revenues is 49.58 % is higher(prenominal) than fabrication norm is 30 % because the company is unproductive and inefficient in buying goods and services from the providers doing higher purchase cost and besides uneffective usage of stuff and labor causation higher production cost to diminish gross net income. In add-o n, per centum of operating net income on gross revenues is 20.99 % and perseverance norm is 18 % . Higher per centum of operating net income on gross revenues indicates that company is uneffective in its outgo control. Besides that, ROCE besides higher than industry norm is 20.99 % and 18 % . This is because, it is bespeaking the lower net net income generated in relation to the capital employed.5.3 Liquid of Continental LimitedCurrent ratio of company is higher than industry norm is 3.32 1 and 2 1which is much that the thought ratio of 2 1, the current ratio is higher or equal to 2 1, the larger sum of current assets can be used to finance current liabilities, bespeaking that company is financially stable and able to finance its short-run debts. Furthermore, the stock turnover period is higher than the industry norm is 117.36 yearss and 90 yearss. The higher stock turnover period indicate fast stock turnover in concern where the goods and services purchased are kept in stock for a short clip and the fast stock for short clip and so fast taken out from stock for resale. In add-on, debitor aggregation period is higher than industry norm is 64.6 yearss and 45 yearss. Higher of debitor aggregation period indicate that company has given monthlong recognition clip to let debitor s owing, causation, longer clip taken by company to roll up money. While, the creditor payment period is lower than industry norm is 48.18 yearss and 60 yearss. The lower creditor payment period show that company has obtained shorter recognition clip for having and paying creditors.6.0 Conclusion and RecommendationIn the decision, making this rule of accounting grant I have learnt a batch of cognition about the rule of history. I already know the different types of accounting users and besides the features of the fiscal statement. Besides that, making this assignment besides has larn how to fix the income statement and balance sheet. The benefit I get from this assignment is larning acco unting will assist us to makes concern or personal fiscal determinations. Another benefit is accounting cognition will assist us to understand the significance of the fiscal information.