1) What makes accounting a valuable discipline? 2) Sole proprietorships, partner
ID: 2453770 • Letter: 1
Question
1) What makes accounting a valuable discipline?
2) Sole proprietorships, partnerships, and corporations differ legally; how and why does accounting treat them alike?
3) Why do managers in governmental abd not-for-profit organizations need to understand financial information as much as managers in profit-seeking businesses?
1) A company incurs a cost for a part that is needed to repair a piece of equipment. Is the cost an asset or an expense? Explain?
2) Which is the most important issue in recording a transaction: recognition, valuation, or classification?
3) In what way are unearned revenues the opposite of prepaid expenses?
Explanation / Answer
1. Accounting is a valuable discipline for the company as it is the stream that offers all the answers to the performance of the company apart from meeting all the statutory requirements of a company.
The performance indicators like profitability of products, net earning, return on capital employed and asset utilized, the ideal capital structure of the firm , the project investment apprisals , the cash flow details , projected earning details etc are valuable information provided by accounting department. Based on such information management can take various decisions regarding maximization of return, minimization of cost, and also get guidance regarding the future course of action to be taken in every strategic area. That is why accounting is a valuable discipline.
2. Sole proprietorships, partnerships, and corporations differ only in the structure of the entity. All of them are subject to the same accounting principles and same Accounting GAAP. The basic accounting principles like accrual basis, going concern, cost basis, matching concept, consistency , conservatism all are applicable in the same way to all form of entity. Only the entities differ on treatment of some taxation related issues.
Thus accounting does similar treatment to all forms of entities based on accounting principles and Accounting GAAP and represent the true and fair view of the financial state through the financial statements.
3. Managers in profit seeking business understand the financial information to maximize the return to the shareholders by maximizing earning and minimizing cost. Similarly Govt and not for profit organization managers need to understand financial information so that they can derive the maximum value for the money spent. The Govt & not for profit organization managers should utilize the financial information to strive towards maximizing the tangible and non tangible econmic benefits from every dollar they spend towards various activities or causes. This will maximize thereturn to the society as a whole and justify the use of taxpayers'money spent on social aspects.
1. Incurring cost on a repair is generally treated as an expense. It is treated as asset only when the repair cost is considerable and is done infrequently in the life of the asset.
2. All the aspects of recognizing (when to record) , valuation (how much to record) and classification (in which account type to record) are very basis and crucial requirements of accounting for transactions. If any of the aspects go wrong, the transaction will be wrongly recorded. So all the aspects are equally important.
3. Unearned expenses are Cash received from customer in advance when service not provided at all. The revenue has not been earned when cash received, so it is a liability to the company.
Prepaid expense on the other hand is the cash paid in advance when the correcsponding expense has not happened. Sp prepaid expense is an asset account.
Therefore unearned revenue and preapaid expenses are exactly opposite in nature.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.