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Computerized Accounting

Autor:   •  October 7, 2018  •  2,768 Words (12 Pages)  •  479 Views

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Going from the statements the company would use to the ratios we are now onto the disclosures. With disclosures, these are footnotes that contain the major accounting policies and methods that the company follows. Additional information may be needed resulting in additional footnotes providing details for assets and liabilities for the company. There are eleven different disclosures that should be provided with the balance statement but all might not be needed for your company. I would like to go over each one a little and the first one will be parenthetical explanations. With a parenthetical explanation, instead of just listing your common stock as a dollar amount it will go more into detail. Using your common stock as an example, the original looks like “Common stock = $200,000” but with the parenthetical explanation it looks like “Common stock ($10 par value, 200,000 shares authorized, 200,000 issued) = $200,000.” The second disclosure is notes to financial statements. Note disclosures are used if only the information cannot be disclosed in a short and parenthetical explanation. An example of a note, “Note-5: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.” Third is cross-references, this is only used when there is a direct relationship between two accounts. There will be some accounts on the balance sheet that often cross-reference other accounts. An example of a cross-reference, “Accounts receivable pledged as collateral on bank loan payable = $1,500,000.” Fourth is valuation allowances, with this disclosure it provides the increased or decreased carrying amounts from certain assets and liabilities. An example of this would be accumulated depreciation which reduces the carrying value of the rental equipment. Example would be Equipment =$240,000; Depreciation =$(2,500); =$237,500. Moving on to the fifth disclosure and it is the supporting schedules, which might be used to provide added details about an item in the financial statements but are not used to report information required by GAAP due to those schedules not being a part of the basic financial statements. An example of a supporting schedule, “Consolidating schedules might be included in addition to the basic consolidated financial statements or a five-year summary of selected financial data might be included.” The sixth disclosure is accounting policies, with this disclosure it identifies the and describes the accounting principles that the company follows and the methods of applying the principles used that affect the determination of the financial position, changes in the cash flows or the result of operations. The three important policies are “Principles and methods peculiar to the industry, selection from acceptable alternatives and unique applications of GAAP.” Disclosure number seven is related parties, which is essentially any party that controls or can influence the management or operating policies of the company that in the end the company may be prevented from pursuing its own interests. A related party can be management, owners, immediate family of the owners, trusts for the benefit of the employees, investors or affiliates. Moving on to the eighth disclosure the comparative statements. Comparative statements are statements from previous years, most enterprises include one or two years of previous statements to be able to compare to the current financial statements. Some include five to ten-year summaries to help analyze the financial status of the company. The ninth disclosure is the subsequent events, this is an event or transaction that might occur during the lapse time before the financial statements have been issued. These events or transactions could affect the financial position of the company thus being why they must be reported. There are two types of events, event one is an “Event that provides additional evidence about conditions that existed at the date of the balance sheet and which affect the estimates inherent in the process of preparing financial statements,” event two is an “Event that provides evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.” The final disclosure is contingencies, what this means is it is an existing condition, situation or set of circumstances involving uncertainty as to a loss or gain. The disclosure for a loss needs to include “If an estimate of loss cannot be made, that fact must be disclosed and if the likelihood is remote that a loss has been incurred, no disclosure is necessary in most circumstances.” Also, the required disclosure is to include the nature and amount of the guarantee. “The current standard codification explains that guarantees embody two separate obligations: The contingent obligation to perform under the guarantee in the event of nonperformance by the party whose obligation is guaranteed; and an obligation to be ready to perform, referred to as a standby obligation, during the period that the guarantee is in effect.” This concludes the disclosures that should be included with your financial statements. These disclosures are to help the outside investors understand how you got the numbers that where provided. Some of these disclosures could also help management make some vital decisions when it comes to the business. I hope that me explaining the disclosures and providing an example has helped you understand them all a little bit better. (http://accounting-financial-tax.com/2012/03/ten-disclosures-should-come-along-the-balance-sheet/)

Before concluding I would like to go over the maturity dates of your major liabilities as well as depreciation policy. A maturity date is the time in which your liabilities become due and is paid back to the investor and the interest payments stop. Maturity dates are classified into three categories short-term (1 to 5 years), medium-term (5 to 12 years) and long-term (12 to 30 years). The longer the term the higher the interest tends to be. (http://www.investopedia.com/terms/m/maturitydate.asp) To explain maturity value more in depth I will be using your business notes payable account. Example: 100,000X0.06X12=6,000 in interest earned.

Determining maturity value:

Example 1:

Face Amount =$100,000

Periodic Rate = (6% X 12 months) or 0.5% Month 7 = (102,525.13 + 512.63) X 0.5% = $512.19

Month 1 = 100,000 X 0.5% = $500 Month 8 = (103,037.76 + 512.19) X 0.5% = $517.76

Month 2 = (100,000 + 500) X 0.5% = $502.50 Month 9 = (103,552.95 + 517.76) X 0.5% = $520.35

Month 3 = (100,500

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