RE: Accounting Issues – Year Ending 30th June 2016.
This is in reply to your email sent on 18th April 2016 in regard to accounting issues we had previously discussed over the phone. Below is our feedback on all the issues that you had raised:
- In regards to the issue of the court decision to reward damages to your client held on 26th March 2016 we would advise that you set aside funds amounting to $1 million in your general reserves account for use upon the verdict expected on 30th September 2016. Below are the journal entries to record this transaction. The same also needs to reflect on the statement of financial position.
|PROFIT and LOSS A/C||1,000,000|
- In the case of Ipad sales we would advise that you treat the sales as debtors less the discounted amount. This is to reflect in the financial reports. You also said that the total amount owed is $ 250,000. This is to treated as accounts receivables less the discounted amount. Below are the journal entries to be recorded in your books.
|Gain on sale of plant||16,000.00|
Your adjusted statements are as below.
A statement of cash flow is prepared to show cash flow from operation and cash flow activities. This report shows changes in financial positions leading from operational activities, investing activities and financial activities. This information can then be used by an analyst to make a conclusion.
A statement of cash flow also assists in making cash forecasts. This is then used in internal management to determine management policies especially those touching in finances. The report is also credited for resulting in cash planning.
Through the preparation of cash flow statements, a business can compare the performance of projects. By comparing the actual cash flows against expected cash flow, a business can know how the project is fairing. An income statement measures a company`s performance financially eg by expenses, revenue, profits or losses over a specified period of time. This therefore means that both financial reports have their importance.
AASB, A. S. (2004). Financial Instruments: Disclosure and Presentation.Disclosure, 51, 52.
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics, 32(1), 237-333.
Lev, B., & Zarowin, P. (1999). The Boundaries of Financial Reporting and How to Extend Them (Digest Summary). Journal of Accounting research,37(2), 353-385.