There are two sides of accounting; Management account (internal) and Financial Accounting (external). Management accounting is used intensely on a daily basis inside a business and the accounts are prepared monthly. The data used in management accounting is intended for use inside the business only. businesses use this data on a daily basis, helping a company plan and make decisions. Earlier I asked if we could imagine a world without financial statement, the answer to this is no. Financial statements are a key part of accounting, and an essential part of a foundation of an organisation, without it how would we know how much money we made, how many products we sold, what we could do in order to keep the company afloat and functioning well. The purpose of financial statements is to show the financial position of a business using historical and current data to summarise how well a business is doing, it’s performances and changes in financial position & if the business is making money. In accounting there are four main fina...
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... same can be said for depreciated assets, though the figure may not be exact, but they must not be undervalued. It’s important that when preparing the financial statement, you are not biased as there are implications such as errors in the financial statement.
in the US it is against the law and you can be fined for obvious overestimation/underestimation. (Smallbusiness.chron.com, 2016). However, there are instances when overstating/understating isn’t done deliberately and estimating accurately, the concept of prudence is meant to get rid of bias, so there is no evident fraud. Under the accruals concept income/revenue and expense must recognize and account for a transaction/sale for a particular accounting period even if there was no payment made. To ensure that expenses match the revenue earned an adjustment is made at the end of the year (Wood and Sangster, 2005).
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