Advanced Financial Accounting Assignment
Are you in college and struggling with your financial accounting assignment? Do you need help understanding how to do the equations for this assignment? Have no fear; we can help! Here, we will address these questions. First, let’s talk about what exactly is a advanced financial accounting assignment and why it’s essential.
What is Financial Accounting
Financial Accounting is the process of tracking the money that flows into or out of a business or organization. It helps managers track their company’s assets and liabilities, which are used to measure its performance over time. Financial Accounting also allows for decision-making by providing the information necessary to evaluate several alternatives (Bartlett, 2011). Financial accounting boils down to two primary financial statements: The income statement and the balance sheet.
The Balance Sheet
The balance sheet is a financial statement that lists all of the assets owned by an entity and then subtracts from it any liabilities.
Assets are things that provide future benefits to an entity. Some examples of assets: cash, accounts receivables (i.e., money owed to the business), inventory (things you’re planning on selling), equipment, property, and long-term investments.
Liabilities are things that require payment in the future. Liabilities include both short-term liabilities like utility bills and credit card payments that must be made within 12 months and long-term debt such as mortgages and car loans with repayment terms more significant than one year in length. Assets minus liabilities give us net worth, also known as shareholders’ equity.
The most prominent part of the balance sheet is the statement of shareholder’s equity. This includes all assets and liabilities, but lists preferred stock, common stock, retained earnings (money left over after all expenses are paid), and treasury stock (shares not currently on the issue). The controlled earnings section will have a negative value if the business has ever made a profit—the positive figure there represents the amount that has been paid out in dividends to shareholders.
The Income Statement
The income statement is a financial statement that summarizes the revenues and expenses of an entity over a certain period. It details what happens to sales, costs, taxes, etc., when transactions are completed, or assets are sold. The income statement shows how much money came in and went out between the months or years listed for the company and how much cash it had leftover at the end.
This information helps us understand the gross profit (percentage) we have been making on each sale: The difference between sales revenue and direct costs gives us our gross margin. This percentage represents our profitability on each deal before accounting for overhead expenses like office supplies, utilities, rent or mortgage payments on buildings owned by the business, and sales salaries. This number will help compare companies, evaluate how efficiently a company uses its resources to generate revenue, and determine pricing strategies.
The Statement of Cash Flows
Another essential part of financial accounting is the statement of cash flows. It helps us understand where the cash came from (sales) and went (expenses). We can also see what has happened with our accounts receivable, such as when they are sold or collected into cash. Understanding this information helps us answer questions like:
- Why do some businesses fail?
- How does interest affect my business’s bottom line?
- What role does credit play in my business?
Double-Entry Bookkeeping and Journal Entries
Double-entry bookkeeping is the system of recording transactions used by businesses. In the double-entry bookkeeping system, every entry to a business’s accounts requires two corresponding and opposite ledger entries: one debit and one credit. This ensures that assets always equal liabilities plus equity because each entry must be offset by an opposite and equal access.
This ensures accuracy when reconciling your accounts through detailed analysis of each transaction, either through spreadsheets or specialized accounting software like QuickBooks Pro, Excel Accounting, Intuit GoPayment, etc. These programs allow you to view your financial situation in real-time and track past business performance for future year projections.
To understand where some of the numbers on our financial statements come from, we need to understand journal entries. The journal is a detailed chronological record of every accounting transaction within a company and its subsidiaries or related organizations.
The general format for a business’s monthly journal entry records the date, amount (debit or credit), and description (description of what was purchased or sold) of every financial transaction that occurred within the organization over a given period. A corporate controller uses the information in these chronological records to prepare financial statements for internal use by management and external users like stockholders and government agencies.
Credit transactions are recorded on the left side of an account, while debit transactions appear on the right side of an accounts ledger page. Credit transactions decrease assets, while debit transactions increase investments.
How to Complete the Accounting Cycle with T-accounts, Trial Balances, and a General Ledger Account Listing (GL)
A T-account is a tool accountants use when recording transactions within the accounting cycle. Transactions in one column are balanced and listed against the opposite transaction amount on the other side of the ledger page (either credit or debit). When debits equal recognition, we say that the ‘T’ has been closed out.
This report summarizes all of our account balances at a certain point, showing how much money an organization should have according to its financial statements (balance sheet and income statement). It also helps us look for errors like improperly recorded transactions or incorrect amounts from information compiled over multiple accounting periods.
GL Account Listing:
The General ledger account listing is a blueprint of every transaction or event that occurs within an organization. After closing your books, this document will prepare financial statements like the balance sheet and income statement.
Mistakes to avoid in Advanced Financial Accounting (same as mistakes for Basic Financial Accounting):
- Not recording all financial transactions affecting a company’s accounts (disingenuous)
- Failing to reconcile the balance sheet, income statement, and trial balance
- Disregarding journal entries
- Closing account balances inaccurately
- Miscalculating earned revenue from sales
- Ignoring additional services offered by a business
- Poorly capitalized or undercapitalized businesses
The entirety of accounting is informed decision-making, risk avoidance, and increasing organizational profitability through the strategic use of available resources and funds. All functions within an organization are interconnected — supply chain management to production planning to finance forecasting — which makes it essential that everyone is involved in the accounting process to understand where the organization is financially and work together to improve it.
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