Financial accounting Research Proposal Example | Topics and Well Written Essays - 2750 words

Financial accounting - Research Proposal Example Asset Liabilities Equity Income Expenses. UNDERLYING ASSUMPTIONS Two core assumptions applied while making financial statements are: 1. Accrual Basis: Accrual basis of accounting record the revenues when realized and incur expense when they occur. All the income and expenses are recorded in the accounting record when they actually occur not at the time when cash has flown in or out of the business activity. Therefore in accrual base accounting all the records are reported in the financial statements in the period to which they relate to. Example: Following example adopted from Gibson, Charles H., 1998. Financial Statement Analysis: Using Financial Accounting Information, 7th Ed. South Western. Slight numerical values have been altered. Suppose: 1. Manufacturing concern sold merchandise for $15,000 on credit this year. This merchandise cost $900 when purchased last year. 2. It purchases inventory this year in the amount of $20,000 on credit. 3. Paid to suppliers f merchandise $13,000 this year. 4. Collects cash sales $7,000. Accrual Basis Cash Basis Sales $ 15,000 COGS $ 9,000 Income $ 6,000 Receipts (inflow) $ 7,000 Payment (outflow) $ 13,000 Loss ($ 6,000) It is seen that accrual basis shows a profitable position where else cash basis indicates a loss. Cash basis doesn't indicate the time period for the recognition of revenue and occurrence of cost. It shows the cash inflows and outflows. For this purpose separate statement is prepared whish shows the cash position and named as Statement of Cash flow. When using accrual basis of accounting,...The end users of the financial statements can be customers, investors, suppliers, government agencies, student body, economist or general public. The International Accounting Standard Board, a privately owned body based in London presented a document in July 1989 which became framework for the preparation & presentation of financial statements. On this framework all the IAS are based and determine the financial statement preparation and the information they contain. Accrual basis of accounting record the revenues when realized and incur expense when they occur. All the income and expenses are recorded in the accounting record when they actually occur not at the time when cash has flown in or out of the business activity. Therefore in accrual base accounting all the records are reported in the financial statements in the period to which they relate to. It is seen that accrual basis shows a profitable position where else cash basis indicates a loss. Cash basis doesn't indicate the time period for the recognition of revenue and occurrence of cost. It shows the cash inflows and outflows. For this purpose separate statement is prepared whish shows the cash position and named as Statement of Cash flow. Going concern assumption believes that business entities will remain in business for indefinite period of time. That the operations will continue in the future years.