Financial Accounting Topics, Free Essay Sample

Financial accounting is a broad discipline with various topics. There is the income statement which is a profit and loss that shows the revenues generated by the business operations together with the corresponding operational expenses incurred in generating the reported revenue (Carmichael, Whittington, and Graham). The difference obtained between the revenue and expenses thereof is the profit or the loss that the entity will have made during that particular financial period.

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The balance sheet is another financial accounting statement that contains the different items used as the capital to generate the revue reported in the income statement. The balance sheet has two segments with one bearing all the assets that the entity has utilized in the operations of the business to generate operational income. Then there is the capital and liabilities segment that shows how the assets of the company have been financed.

In financial accounting, there are financial statements that are prepared by the company periodically for every financial period in which the company operates. The financial statements are a set of financial documents that include the income statement, the balance sheet, the cash flow statement, and the statement of changes in equity (Carmichael, Whittington, and Graham). The financial statements are prepared for the sake of various stakeholders who include the management, shareholders, government authorities, consumers, and prospective investors among others.

Stock is the business inventory that appears under the current liabilities segment of the balance sheet. It could be the raw materials, work in progress, or the finished goods that the business entity aims to sell to generate revenue. Stock is a sensitive items whose management is key to the overall operations of the company. There are various approaches to managing the business inventory which include the first-in first-out method (FIFO), the last-in last-out method (LIFO), or the weighted average method (Carmichael, Whittington, and Graham). FIFO is an approach towards stock management that means the inventory that was first to be brought in will be the first to be sold out. The idea behind this approach is to sell out the stock that has been in store for the longest time, thus avoiding expiring. LIFO is the opposite of FIFO in that the inventory that was brought in most recently becomes the first to be sold out. LIFO is an ideal approach in market situations where there are price fluctuations. Recently arrived stock is sold at prevailing market rates irrespective of the stock purchase price. Lastly, there is also the weighted average method of managing inventory. This approach disregards the first or last stock items to be brought into the store and focuses on attaining a weighted stock price that aids in quantifying the net realizable of the inventory held.

Credit cards are used in the world of commerce as a means of payment. They are the best examples of plastic money as all the financial transactions are done through it without the need to carry a lot of cash. It averts the risks associated with carrying cash like theft or loss. Financial institutions use the credit cards as a way of advancing transaction credit to their customers.

Unearned revenue represents all the monies paid in advance to an entity for the provision of goods or services that have not yet been delivered. In financial accounting, the unearned revenue is a balance sheet item that appears under the current liabilities. Once the company eventually supplies the goods or services for which an advance payment had been made, then the unearned revenue account is reduced with the corresponding double entry being an increase in revenue.

Work Cited

Carmichael, D.R., Whittington, O. R., and Graham, L. Accountants' Handbook, Financial Accounting and General Topics. John Wiley & Sons Inc, 2012. Print.