Financial accounting Research Paper Example | Topics and Well Written Essays - 1500 words

Financial accounting - Research Paper Example Practice 3-1 Solution: a. The accounts impacted by the transaction are 'Cash' and 'Notes Payable' b. Both 'Cash' and 'Notes Payable' accounts increased. c. 'Cash' and 'Notes Payable' accounts increased by $5,000. d. Total Assets increased by $5,000, Total Liabilities increased by $5000, Total Equity, however remained unchanged. Practice 3-2 Solution: a. The accounts impacted by the transaction are 'Cash' and 'Land' b. 'Cash' account decreased while 'Land' account increased. c. 'Cash' decreased by $45,000. 'Land' increased by $45,000. d. Total Assets, Total Liabilities and Total Equity remained unchanged. Practice 3-11 Solution 20XX May 1 Cash.. . 125,000 Notes Payable.. 125,000 Borrowed from Far West Bank signing a 2-yearnote at 14% Practice 3-12 Solution 20XX May 14 Land.. 45000 Cash.. 45000 Bought land on west side of Hatu Lake Practice 3-16 Solution Refer to Practice 3-11 Notes Payable 20XX 20XX May1 Beg. Bal. 0 May1 Cash 125000 May30 End. Bal. 125000 Cash 20XX 20XX May1 Beg. Bal. 0 May1 Notes Payable 125,000 May30 End. Bal. $125,000 Refer to Practice 3-12 Land 20XX 20XX May1 Beg. Bal. 0 May14 Cash 45000 May30 End. Bal. $45000 Cash 20XX 20XX May1 Beg. Bal. 0 May 14 Land 45000 May30 End. Bal....These are called "generally accepted" because they are widely accepted by business community. Otherwise, these rules will have no application in business. In the USA, Financial Accounting Standard Board (FASB) develops GAAP. It is a private body that sets both broad and specific rules (Wild, 2005). Securities and Exchange Commission (SEC) is another government entity that sets reporting requirements for companies that issues stock to general public. In addition to above-mentioned two bodies, there is another board called International Accounting Standards Board (IASB) that establishes International Financial Reporting Standards. This is an attempt to establish a harmonious and consistent system of accounting throughout the globe. However, IASB cannot impose these rules to organizations. The main objective of GAAP is to make financial information "relevant, reliable and comparable" (Wild, 2005). Managers' decisions are highly affected by the relevant financial information. Adherence to GAAP offers reliability to financial information and wins the trust of the user. Good understanding of these principles is necessary especially when you are comparing the performance of two or more companies, especially when the companies belong to different industries or countries. An adjusting entry is necessary to bring assets/ liabilities and revenu