HSM 340 Week 2 Quiz

Penman (2007) had stated that historical cost may provide useful margins on turnover for forecasting operating cash flows in a going concern business. On the other hand, when valuing a portfolio of marketable investments with fair value, it tends to be more reliable. Stakeholder of Woolworths includes investors, creditors, lenders and so forth, their needs of accounting information are different. Some of the investors are interested in the information using fair value approach for them to decide whether to buy or sell their shares, some of the lenders and creditors are interested in the current value of assets and liabilities of the entity to decide the ability of the entity to pay off a debt when due. Further, a particular stakeholder need more than one measurement approach to satisfy their needs of accounting information (e.g. considering to engage with Woolworths). Therefore, mixed measurement approach would be more appropriate to satisfy each stakeholder needs of accounting information (Rankin et al., 2012; Dvorakova, D., 2011).

Accounting is a business discipline that allows companies to record, analyze, and retrieve critical financial information that can be used to determine a company 's financial status. Its purpose is to help people understand what is going on financially within an organization provide reports and insights needed to make sound financial decisions.

Accounting is the study of how businesses track their income and assets over time. Accountants engage in a wide variety of activities besides preparing financial statements and recording business transactions. These activities include computing costs and efficiency gains from new technologies, participating in strategies for mergers and acquisitions, quality management, developing and using information systems to track financial

Question: (TCO 2) Explain the difference between the accrual basis of accounting and the cash basis of accounting.?

Cash basis accounting gives an accurate reflection of a businesses’ cash flow. Since it only records revenue and expenses when they actually occur, the business knows how much cash it has on hand in that particular moment.

Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.

1. Add up your sales for the period for which you want to create the income statement. Sales or revenue is the first line of the income statement. If you run a cash-based business, your sales records come from a cash register. The preferred method to record sales for a cash-based business is the cash method. This means that as soon as the customer pays, you record a sale. If you use the accrual method, you record a sale even though you may not necessarily receive money from your customer. In conjunction with recording a sale, you make an entry in accounts receivable.

Over the past several years, there has been a growing controversy over the accounting issues of fair values and historical cost. The basis of this controversy revolves around which one of these principles is the most accurate. There are many different viewpoints on this issue. Many accounting professionals believe that fair value is just as accurate as the historical cost principle, while others believe that the historical cost is more reliable. The facts about each of these valuation methods will be researched and explained throughout this research document, as well as the different viewpoint about which method is the most accurate and reliable.

Historical cost is the most common adopted measurement basis in the IASB; FASB suggests that market selling price (Fair Value) is more accurate description of how much assets and liabilities are currently reflected in financial reporting (SFAC 5, 2008). In other words, it was about the historical cost versus fair value. Historical cost gives priority to existing shareholders and regard stewardship as an important function of financial reporting (Whittington, 2008). Historical cost records actual transaction with supporting documents so the financial report is less subject to manipulation by management (Shortridge et al., 2006). The information is relevant to forecasting future cash flows within entity specific perspective rather than direct valuation of future cash flows. Historical cost accounting may lack relevance as during period of inflation (Pozen, 2009). The fact that relevant information has predictive value strengthens its decision making power over reliability principle (KAYA,

1 The primary purpose of accounting is to determine whether the business entity is profitable or unprofitable in its operations.

HP in 1994 decided not to integrate the ABC in the Cost Accounting Information System (abbreviated CAIS) for a number of reasons. The first reason is that at that time the CAIS was implemented in all HP business units worldwide. This system was considered very complex and difficult to change. Because ABC was only used in one business unit it was thought to be insensible to change the whole system. The second reason is connected to the codification of the operations in the CAIS. If the ABC would be integrated this system would have to be reorganized and all the employees would have to learn to operate the new

An explanation of the accounting and business techniques that have been used, including a discussion of their limitations

The first one is the income statement – Income statement is a financial statement that

The process of observing and providing the financial statistics of an organisation which is useful for customers for managing and to create economic decisions. “The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of information.” (McLaney and Atrill, 2002:1). Accounting data is unbiased and neutral, which helps to determine the level of excellence and different factors that influence the company’s performance. This point has been explained clearer by (Ezzamel & Willmott, 2004:784) “ Accounting information is an impartial and neutral representation data, which is correctly used, can reduce unwanted ambiguities and can reduce waste in organizing supplies”. The three main financial statements are the balance sheets, the profit or loss account and the cash flow statement. Hence, with these types of

Accounting can be defined in a number of ways, but I chose the book definition, which is; Accounting is an information system that provides reports to stakeholders about the economic activities and condition of business. The person in charge of accounting is called the accountant. The accountant is typically required to follow a set of rules and regulations. These rules and regulations are called the General Accepted Accounting Principles. Throughout these next few paragraphs, I will be giving you the history and evolution of accounting, and I will be explaining who the stakeholders are and what type of information they require, and I will be explaining the role of accounting in business. There will be many examples and type of business