Question 1: Proficient: Discuss the effects of four of the five major accounting assumptions on the accounting process. The effects of the five major accounting assumptions that affect the accounting process are; 1. Business entity - the business entity assumes the data collected in an accounting system relates to a specific business. The Business entity concept assumes each business existence is separate from its owners, creditors’, employees, interested parties and other businesses. Under the business entity premise, the data collected is strictly about the business and not the owner. There are other forms of entities within the a corporations. For example, companies like Toyota or Ford Motors, may have several different legal entities for reporting purposes but the corporation may be consider as one business entity because they have common ownership. 2. Going-concern assumption believes a business will continue to operate unless strong evidence suggests the entity will end. The termination of an entity happens when a company crease business operations and sell it assets. Going-concern assumption is no longer valid, if a business appears likely to liquidate. Accountants often cite this assumption to justify use using actual cost rather than market cost to measure assets. 3. Money measurement relates to measuring the business economic activities in monetary terms like dollars instead of using physical terms like inches, grams, or feet. Using a common monetary unit allow accountants to report economic activities in a consistent manner. Without monetary units, it would be impossible to add things like building, equipment, and inventory to the balance sheet. Financial statements reports in monetary units to allow users to make val... ... middle of paper ... ... be the number one seller and generate revenues in excess of $500 million dollars. The company also has a patent suit that it believes it will lose for $20 million dollars. According to conservatism principles, it suggests the company report the contingent liability in the footnotes on the company’s financial statement. References Averkamp, H. (2014, January 1). Accounting Principles | Explanation | AccountingCoach. AccountingCoach.com. Retrieved May 2, 2014, from http://www.accountingcoach.com/accounting-principles/explanation Hermanson, R., Edwards, J., & Maher, M. (2010).Accounting principles: A business perspective. (Vol. 2). Textbook Equity inc. DOI: www.textbookequity.com Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.
Reimers, Jane L. (2003). Financial Accounting A Business Process Application. Upper Saddle River, New Jersey, Prentice Hall.
Financial statement analysis: theory, application and interpretation / Leopold A Bernstein and John J. Wild 6th edition Mc Graw Hill 1998
Parrino, R., Kidwell, D. S., & Bates, T. W. (2011). Fundamentals of Corporate Finance. Hoboken, NJ: John Wiley & Sons. (Original work published 2009)
Longevity/Continuity: If the owner dies or decides to no longer be in business, all business assets must be sold or given away. They may not be passed on, nor can new ownership occur under the same name because the individual owner and the business are legally the same. The business must be dismantled and another individual may start a similar business using assets that were sold or given to them by the sole proprietor.
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
A sole proprietorship is a business owned and controlled by a single individual. There are more sole proprietorships than any other type of business available (Lau, 2011). It is a simple type of business to set up, as well as simple to terminate. The proprietor has the freedom to determine operating hours, what services or goods to provide, where it operates, and what contracts to enter into without needed to consult another party. With full control, however, comes full liability. A proprietor is personally liable for all financial obligations whether they be debts from company operations or restitution ordered to be paid from third party suits. It can also be difficult to secure financing for a sole proprietorship as banks look at the business as an individual. Often, banks will treat loans to proprietorships as personal loans to the proprietor and require collateral.
Gibson, C. H. (2011). Financial reporting & analysis: Using financial accounting information. (12th ed.). Mason, OH: South-Western Cengage Learning.
The risks that businesses and other organizations encounter while dealing with litigation are several. First, they face a probability of winning or losing. This is because it is not certain that one party must win. Secondly, the amount of money to be won or lost is not defines. Businesses organizations or people have the risk of getting little money than they expect. In fact, they could get little money than they have sent in the litigation process. The fees required by attorneys and other costs of litigation make the process considerably expensive. Another risk involves loss of productive time of the managers and other personnel as ...
Kaplan, R. S. and A. A. Atkinson, Advanced Management Accounting, Second Ed. (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1989), p. 373.
References Financial Accounting Standards Board. 2006, July 6 -. Conceptual Framework for Financial Reporting. Financial Accounting Series, 1-55. Wolk, H., Dodd, J., & Tearney, M. (2003).
When I record the transactions of the company in the UBS system, it required both debit effect and credit effect of the transactions, the total debits must be equal to the total credits. Besides that, the theory of money measurement also apply in the workplace. We record all the economic events and transactions of the client companies in monetary unit which is Ringgit Malaysia. Sometimes, the client companies having some investments in foreign countries and the amount is in foreign currency, we need to convert it into Ringgit Malaysia before we key into the UBS system. In addition, the assumption of business entity also apply during my undergone internship. For example, we need to ask the client when they bought non-current assets such as television or sofa because we need to know that television or sofa is for their company use or for their personal use. If the television or sofa is for their personal use, we cannot record it into the non-current asset account and we need to credit from the company’s capital. Furthermore, I also apply the theory of consistency in the workplace. For instance, we need to use the same accounting principles from one period to the nest for the company’s
The business entity concept is the accounting records reflect the financial activities of a specific corporate entity. It is separate from its owners, for example stockholders, managers or the proprietor, that means business can own assets, have liabilities and enter into business transaction. In other words, in the point of view of Generally Accepted Accounting Principles (GAAP), the owner and the business are two separate entities. Besides that, partnership and corporations are also should be accounted for separately. For example
The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.
3.Longevity: the sole proprietorship has a limited lifespan once the owner dies or moves on from the sole proprietorship will cease to exist