Financial Statement Representation Of A Transaction example essay topic

I - A". Representational faithfulness is accomplished when transactions and events affecting the entity are presented in financial statements in a manner that is in agreement with the actual underlying transactions and events" (CICA, Financial statement Concepts 1000.21 (a), 2003). It means that all of information in the financial statement such as numbers and descriptions must be factual. The independent auditors checked the computer ID tags on each piece of equipment to confirm the actual numbers, and for that reason By rn Company observes the representational faithfulness that is one of subsets of reliability. I - B. "The consistency principle states that businesses should use the same accounting methods and procedures from period to period" (Harrison, Horngren, Lemon, & Lemon, 2004, p. 279) Hence the financial statement of Carroll Company violates the consistency principle. I - C. "The time-period concept ensures that accounting information is reported at regular intervals" (Harrison, Horngren, Lemon, & Lemon, 2004, p. 114).

Still, the company believes that quarterly financial information can be issued whenever it is convenient for the accounting department, and they published its first three quarterly reports during the 10th month of the year. Consequently the financial statement of Dawn's Data Enterprises violates the timeliness that is one of subsets of relevance. I - D. "The financial statement representation of a transaction or event is verifiable if knowledgeable and independent observers would concur that it is in agreement with the actual underlying transaction or event with a reasonable degree of precision. Verifiability focuses on the correct application of a basis of measurement" (CICA, Financial statement Concepts 1000.21 (b), 2003).

Even though the comptroller of the bank knows the electric pencil sharpener may qualify as an asset by years of benefit expected, he decided that the cost of the sharpener should be expense. As a result, the financial statement of the bank violates the verifiability that is one of subsets of reliability. I - E. "Information that helps users to predict an entity's future income and cash flows has predictive value" (CICA, Financial statement Concepts 1000.20 (a), 2003). The company's financial statements show ten years successful operation, and it helps Bill to invest in the company. The financial statement of Wilson Enterprises follows the predictive value and feedback value which is one of subsets of relevance. II - A. A dress shop purchases a $3,500 sewing machine to use for alterations.

A dress shop's assets increase amount of $3,500 because assets mean all resources owned by a business. For example, cash, account receivable, office supplies, inventory, equipments, buildings and land are all assets. In this case, a dress shop needs a sawing machine to operate business. II - B. You borrow $4,000 from Aunt Agatha to pay your tuition. The $4,000 will have to be paid back five years after you graduate from university.

Now I am having "long-term liabilities". Liabilities are divided into current and long-term liabilities. Current liabilities are debts payable within one year or within the entity's normal operating cycle if longer than a year and long-term liabilities are payable after one year. II - C. Sue's Pizza Parlour sells an old clunker delivery car for $500 more than its book value.

In this situation, Sue's Pizza parlour has "gain". According to CICA handbook 1000.39 "Gains are increases in equity / net assets from peripheral or incidental transactions and events affecting an entity and from all other transactions, events and circumstances affecting the entity expect those that result from revenues or equity / net assets contribution". II - D. A Bank of Montreal branch pays its armoured car service $10,500 in monthly fees". Expenses: are decreases in economic resources, either by way of out flows or reductions of assets or incurrence of liabilities, resulting from an entity's ordinary revenue generating or service delivery activities" (CICA, Financial statement Concepts 1000.38 (a), 2003). A Bank of Montreal has been paid $10,500 for armoured car service.

This transaction makes cash amount goes down. II - E. Sue's Pizza Parlour sells 250 12" pizzas in a week for $8.95 each". Revenues: are increases in economic resources, either by way of inflows or enhancements of assets or reductions of liabilities, resulting from the ordinary activities of an entity. Revenues of entities normally arise from the sales of goods, the rendering of services or the use by others of entity resources yielding rent, interest, royalties or dividends.

In addition, many not-for-profit organizations receive a significant proportion of their revenues from donations and government, grants and other contributions" (CICA, Financial statement Concepts 1000.37 (a), 2003). According to definition of revenues, cash balance of Sue's Pizza parlour increase by amount from selling Pizza. II - F. West Jet buys 12 used airplanes from Air Canada for $1,000 each. Six of the airplanes can fly and carry passengers.

The other six airplanes will be used for parts to repair the first six airplanes as necessary". Assets: are economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained" (CICA, Financial statement Concepts 1000.29 (a), 2003). The cash balance of West Jet decreases by $12,000, but, at the same time equipment balance increase by same amount of decreases because assets not only include cash but also account receivable, office supplies, inventory, equipments, buildings and. II - G. Murphy, Inc. employs five scientists who are working on a cure for the common cold.

If they find it, Murphy will make billions and billions of dollars. Right now, Murphy is paying the scientists $2,000 per week per scientist. According to CICA handbook 1000.38 "Expenses are decreases in economic resources, either by way of out flows or reductions of assets or incurrence of liabilities, resulting from an entity's ordinary revenue generating or service delivery activities " Expenses are divided into store-operating and general and administrative expenses. At this time, salaries of scientists are general and administrative expense because salaries do not directly relate to selling products. o Store operating expense: (also called selling and distribution expense) includes all expenses direct related to selling merchandise. Advertising, promotion and compensation of salespersons are selling expenses.

The cost of transporting merchandise to store is a distribution expense. o General and administrative expense: includes all operating costs not directly related to selling product. Examples include the salaries paid to company executives, and home-office expenses.