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

Financial accounting - Research Proposal Example plusLiabilitiesEquityIncomeExpenses.UNDERLYING ASSUMPTIONSTwo core assumptions applied while making financial arguings ar1. accretion BasisAccrual institution of accounting translate the revenues when realized and incur expense when they occur. All the income and expenses are recorded in the accounting record when they actu onlyy occur not at the time when funds has flown in or out of the business activity. thereof in accrual base accounting all the records are reported in the financial statements in the period to which they relate to.ExampleFollowing good example adopted from Gibson, Charles H., 1998. Financial Statement Analysis Using Financial Accounting Information, 7th Ed. South Western. ignore numerical values have been altered.Suppose1. Manufacturing concern sold switch 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 BasisCash BasisSales $ 15,000COGS $ 9,000Income $ 6,000Receipts (inflow) $ 7,000Payment (outflow) $ 13,000 departure ($ 6,000)It is seen that accrual hind end shows a profitable position where else cash basis indicates a loss. Cash basis doesnt indicate the time period for the recognition of revenue and occurrence of cost. It shows the cash inflows and outflows. For this finding 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 external 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 b ased 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 in truth 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 doesnt 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. discharge concern assumption believes that business entities will remain in business for indefinite period of time. That the trading operations will continue in the future years.