Accounting Case Study

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Accounting – Essay Question Assignment – Part C Hayden Megchelse “The Statement of financial position is a document with problems” The Statement of financial position is a very useful tool full of information showing the position of an entity. However within this sheet of information lies a lot of limitations and problems. This essay will pinpoint some of the limitations and problems within the balance sheet. These limitations include how the balance sheet does not reflect the true financial position of a business, it does not reflect assets that can’t be measured monetarily and it also has a huge amount of estimated values and not actual verified values so this causes some controversy within the entity and its true position on the market. As well as the problems within the balance sheet there also lies a lot of problems with what’s left out of the balance sheet. The balance sheet does not show a true and fair view of an entity at a specific time. This problem arises as some of the figures within the balance sheet have to be estimated and cannot be proven to be exact. These figures include some of the assets and liabilities held within the entity. Liabilities include vacation pay, pensions and any sort of contingent liability like a coming court case. Assets include any sort of intangible asset, these could be a trademark or goodwill. These examples are all estimates and predictions of what the actual value should be. This causes major problems when trying to measure the exact value of an entity as some of the figures that are being used to measure this value are just estimates and can only be taken as the best judgement of what the actual value should be which could in turn be different and effect the position of the... ... middle of paper ... ...e an income statement needs to be looked at to show if the business is making a profit and if the expenses are too high or what has change in revenue from year to year. This is just an example of many other sources need to be looked at before deciding on the financial position of the entity. There are many issued involved with statement of financial position and the limitations evolved within it. Although there are many reasons to prove that more than just the balance sheet needs to be looked in deciding on the financial position of an entity, it is still a useful tool in looking at parts of an entity’s financial position. Overall I agree with the statement that “the statement of financial position is a document with problems” due to the evidence that has been given but I also feel that it is still an important aspect when looking at an entities financial position.

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