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Liquidity & solvency ratios

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1. What are examples of irregular items? How does a change in accounting principles affect the financial statements? Who in the organization is responsible for the application of a change in an accounting principle? Why?

2. What is horizontal analysis? What is the value in using horizontal analysis? Why would a company use this analysis? What does this analysis tell you?

3. What is the liquidity ratio? Provide specific examples

4. What is the solvency ratio? What are some specific examples?

5. What is the profitability ratio? What are some specific examples?

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The response addresses the queries posted in 929 Words, APA References.

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The response addresses the queries posted in 1096 words with references.

//Before discussing any accounting term, the comprehensive knowledge regarding the term is very necessary. So, firstly, we will discuss various examples of 'irregular items'. In addition, we will discuss how does a change in accounting principles will affect the financial statements and who in the Organization is actually responsible for the application of a change in an accounting principle and why. //

1. The various examples of the irregular items are discontinued operations, changes in accounting policy and extraordinary items (abnormal and infrequent items) such as, natural disaster, expropriation, etc. Accounting principles means that the plan which explains the method adopted to prepare financial statements. Mainly accounting principles are the broad rules adopted by the accounting profession as guides for use in recording and reporting activities of a business to its stakeholders like investors, customers, shareholders, etc. (Hermanson, Edwards & Maher, 2008). A change in the accounting principles has a substantial effect on the financial statements because accounting principles are the backbone of accounting since every business transaction effects at least two aspects of the business. If any industry has not adopted the modifying accounting principles then, the industry will not be able to produce realistic financial statements. The changes in the accounting principles also affect the real income of the shareholders.

Top management executives and financial department is highly responsible for the application of a change in an accounting statement because the main process of formulating and implementing the accounting principles is done only through the financial departments.

//Above we discussed about the irregular items. As per the ...

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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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