Accounting Essay Example

Published: 2022-03-31
Accounting Essay Example
Type of paper:  Essay
Categories:  Finance Accounting
Pages: 7
Wordcount: 1848 words
16 min read

The role of the management in the use of estimates such as the net realizable value of receivables, valuation of inventories and accumulated depreciation.According to Warren and Jones (2018) the role of the executive, in a firm is to facilitate the process of verification of the adequacy of various estimates. For example, the management's position as far as the use of estimates such as accumulated depreciation is to provide an assessment of the worth of assets that are considered to be of high significance. Moreover, the management has to conduct an in-depth evaluation of the reasonableness in which the formula associated with depreciation has been used. Also, the administration must also look into the economic benefits likely to be achieved from the asset. Moreover, Dichev, Graham, Harvey, and Rajgopal (2012) argue that in the valuation of inventory, the management should provide an environment that facilitates ease of taking stock. Moreover, it should also create a conducive environment in which the auditors can be able to audit the firm, by the recording of serial numbers in business transactions.

Trust banner

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Description of Incentives Management has to Misrepresent Estimates

According to Dichev et al. (2012), some of the incentives the executive integrates to misrepresent estimates include the fact that they may be coerced into manipulating the stock prices. Besides, the other motivation is that the senior-most personnel may fear the harsh repercussions associated with poor firm performance. The additional incentive is that there may be both external and internal pressure to hit the set targets.

With the core value of integrity in mind, discuss controls and procedures companies can put in place to prevent misrepresentation of these estimates.

Weygandt, Kimmel, and Kieso (2015) argue that the formulation of controls and procedures that enhance commitment, competency and accountability in a firm lead to the prevention of misrepresentation of estimates. Besides, the formation of responsibility centers in which specific managers are accountable for set duties such as a revenue department, an expenditure department, a profit section, an investment department leads to the reduction in cases associated with misrepresentation of the estimates.

Module 3

Primary Elements and Totals found in a multi-step income statement? Why are these important?

According to Horngren et al. (2012), the multi-step income statement is important as it differentiates between both the operating revenues and expenses, from those that are non-operational. Besides, it also distinguishes between costs, the profits, and the losses. Moreover, it is essential to point out that the central totals in the multi-step income statement include the gross profits, the operating income, the net income, and the net loss (Weygandt, Kimmel & Kieso, 2015). The importance of the totals in the multi-step income statement is that they provide grounds for making a comparative assessment of an institution's current gross margins to its gross margins previously.

Besides, a comparative analysis of the sector's gross margin with that of the company is also a vital significance of the multi-step income statement. Moreover, Weygandt, Kimmel, and Kieso (2015) also reiterate that the multi-step income statement facilitates the comprehension of the amounts of profit generated by a company. Besides, it is also of fundamental importance for one to fathom that the other element, of the multi-step income statement, is its bottom line, which when demonstrated in the affirmative depicts net income. However, if the bottom line reflects a negative value then, it is referred to as a net loss. The net loss and profit, in the multi-step income statement, enables the management to plan for the company's future.

Module 4

Of the elements on the statement of stockholders' equity, would you say any was more important than the others were? Explain.

According to Horngren et al. (2012), the comprehension of the significance of the elements included in the statement of stockholder's equity depends upon deciphering what constitutes the statement. In this case, Horngren et al. (2012) implore, that the report of stockholder's investment is a financial statement, which is issued by a firm and acts like a share of the firm's balance sheet. Moreover, Dichev et al. (2012) argue that the statement of stockholder's equity shows the variations in the degree at which shareholders claim ownership in the business. Besides, the level of interest of the shareholders in a particular firm is provided, from distinct accounting periods. Nevertheless, Dichev et al. (2012) argue that the calculation of the stakeholder's equity is obtained by getting the difference between a firm's total assets, and its liabilities.

Besides, Horngren et al. (2012) argue that the elements in the statement of stockholder's equity include the preferred, standard, the treasury stock, the contributed funds, and the income that has been retained. However, the preferred stock and the common stock are more significant as compared to the other types of elements. For example, Dichev et al. (2012) point out that the preferred stock refers to a tighter hold and claim to a firm's assets as compared to the stockholders having the common stock. It is also essential for one to keep in mind that the typical stockholders are often limited to making decisions that are likely to influence the performance of the company while incorporating the use of voting rights. Needless, to say is that the treasury stock, the contributed capital, the retained earnings and the unrealized gains and losses, which also form part of the elements of the statement of stockholders equity, but none of them has a high significance as compared with the preferred stock.

Module 5

Of the three major categories of activities on the statement of cash flows, some say the operating activities are the most important. Defend this position

According to Dickinson (2011), the leading categories of events present in the statement of cash flows include the investing, operating, and the investing activities. However, the rationale that the functional activities in the statement of cash flow is valid. For instance, according to Warren and Jones (2018), the operative events in the statement of cash flows are all associated with the net income of the particular company. Moreover, the entities included in the net income, include the revenue, and the expenditure. In this case, the revenue is the amount generated from the sale of either goods or services. It is imperative to point out that the operating activities are the most important because the interests that are obtained from the loan oriented events are also in the running activities category (Dickinson, 2011).

On the other hand, the activities associated with investments, which involve money-oriented activities include the long-term investments that are referred to as the non-current assets. Besides, the investing activities also include features such as property and other company-owned equipment. Moreover, it is essential for one to fathom, that investment-oriented activities are also inclusive of the money that is acquired from the sale of a noncurrent asset such as land, as well as investing in other business ventures. Similarly, financing activities are not as important as the operating activities as they only involve features such as the long-term debts minus its interests, dividend, as well as the money generated from the sale and purchases of stock.

However, the primary significance of the operating activities is that they are concerned with the usual operations of the firm. It is also crucial as it provides answers concerning the amounts of money generated from the daily activities of the company (Dickinson, 2011). The operating activities also provide an enabling environment in which relevant stakeholders can assess the viability of the business.

Module 6

Why are property, plant, and equipment essential to the successful operations of a company? Explain.

According to Chaudhry et al. (2015) property, plant and equipment in a firm are crucial to the conduction of successful operations in a business entity. For example, the property, plant, and equipment are all non-current assets, while at the same time are tangible. The significance of the PP &E in this case, is often in the conduction of financial evaluation of the viability of a conglomerate, as well as can be used as security when seeking for a loan from a financial institute. The property, plant, and equipment are also used when determining the use of future based expenses. Moreover, Weygandt, Kimmel, and Kieso (2015) argue that the property, plant, and equipment are significant to a firm as they are used to generate long-term income to the firm, for a year, or even more than a year. Also, property such as land always increases in value, hence increasing the financial strength of the firm that ownes the land as an asset.

Other examples of property, plant and equipment in a company, may include the machinery used in the manufacture or processing of a firm's goods, as well as the buildings in which the company is located. Besides, property, plant, and equipment may also involve entities such as the company vehicles, all of which directly contribute to the growth of the company, as they can be sold to prevent the firm from going into bankruptcy. The most significant factor that one ought to remember is that in a setting in which a firm deals with the production of machinery, the produced machinery will not be considered as PP&E. However, the machinery that has created the machinery as products will then be the noncurrent assets of the company.

Module 7

Adjusting entries are very important. Why?The significance of adjusting entries particularly in a company setting cannot be under-reiterated. For instance, according to Warren and Jones (2018) the adjusting entries refer to entries that are made before the formulation of financial statements. The primary reason for the entries is to make sure that the financial statements are coherent with the regulations associated with recognizing and matching of finances. Besides, Dickinson (2011) adds that adjusting entries is essential, as it aids in the prevention of an error occurring from a single unnoticed transaction. The transaction, in this case, may influence documenting the actual amount of revenue and expenses generated. Nevertheless, Warren and Jones (2018) provide specific significances associated with adjusting entries.

For example, the adjustment of entries associated with the closing stock facilitates in comprehending the actual gross profit generated as well as the value of products sold by a business entity. Besides, adjustments in the depreciation will result in obtaining the real net profit made by a firm, as it only manifests after a fixed asset has been used. Moreover according to Warren and Jones (2018) adjustments in entries associated with outstanding expenses, is essential, as it will show valuable information related to the amounts that ought to be paid to third parties. Also adjusting entries associated with advance expenses, as well as accrual revenues, is necessary as it facilitates the provision of actual feedback concerning the actual revenue obtained during the next financial period.

Module 8

Discuss the various classifications of liabilities on the balance sheet. Why are they important?

According to Horngren et al. (2012), a liability is a term that refers to an obligation of a business venture, which comes from engagement in past business relations which is resolved through the transferring of assets. As such, it is crucial to point out that one classification of a liability is the fixed type of debt. Here, Weygandt, Kimmel, and Kieso (2015) are of the o...

Cite this page

Accounting Essay Example. (2022, Mar 31). Retrieved from

Request Removal

If you are the original author of this essay and no longer wish to have it published on the SpeedyPaper website, please click below to request its removal:

Liked this essay sample but need an original one?

Hire a professional with VAST experience!

24/7 online support

NO plagiarism