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Financial Management

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Discuss each of the following terms. Your discussion should expand on the definition as given in the course terms. Explain why this concept is important to financial statements.

A. Generally Accepted Accounting Principles.

B. Double Entry Accounting.

C. Historical Cost.

D. Accrual Basis vs. Cash Basis Accounting.

E. Current Assets and Liabilities vs. Non-Current Items.

Refer to the following three sets of annual reports which contain the financial statements. You may find the financial data independent of the annual report for Google. (Make sure you use the latest financial statements -- for the year 2007, or later if available). First read an overview of the company so you are familiar with the company, its products/services and markets and then review the annual report and supplemental financial statements.

1. BP (http://www.bp.com)

BP Financial Statements and Annual Report

http://www.bp.com/extendedsectiongenericarticle.do?categoryId=9021605& contentId=7040949

2. Quicksilver Inc. (http://www.quicksilverinc.com)

QuickSilverInc Annual Report and Financial Statements

http://www.quiksilverinc.com/investor_anualreports_04.aspx

3. RTL Group (http://www.rtlgroup.com)

RTL Group Annual Report and Financials

http://www.rtlgroup.com/www/htm/annualreport.aspx

Locate the following on each of the statements:

The Balance Sheet

The Income Statement

The Statement of Cash Flows

Describe the general organization of each of the three sets of financial statements. Which is more useful in your opinion for each of the three companies: Net Income or Cash from Operating Activities?

Predict companies' future trends using Net Income or Cash Flows. Reach one additional conclusion about each company from the additional information you find in the annual report. Since a several of these companies are conglomerates, discuss how you can find out relevant information about individual segments, such as the IDOLS segment of the RTL Group's Fremantle Media North America.

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The response address the queries posted in 1738 words with references.

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The response address the queries posted in 1738 words with references.

//Before reviewing the financial statements of various companies, firstly we will discuss the importance of several concepts for financial statements. First of all we will discuss the importance of Generally Accepted Accounting Principles and double entry accounting for financial statements.

Importance of Concepts for financial Statements

The Generally Accepted Accounting Principles (GAAP) is very important for preparation of financial statements. Organizations are required to prepare their financial statements in accordance with GAAP. The financial statements in accordance with GAAP cause the increase in credibility of the financial statements. It is also important to compare the financial statements in a particular state as all the organizations follow same accounting process (Ruppel, 2002). The financial statements in accordance with GAAP also increase the trust of the investors in the financial statements of the company. The double entry accounting system is also important for the financial statements as it considers two-fold effect of a business transaction. The double entry accounting increases the accuracy of the financial statements as it records every business transaction completely. Through this accounting system, proper information can be received for the cash inflow or cash outflow. It is also helpful to reduce the fraudulent activities and to prepare the financial statements easily. The basic accounting equation is also based on the double entry accounting, which makes the financial statements more reliable.

//Above, we discussed the importance of double entry accounting and GAAP for financial statements. Now as per the direction, we will discuss the importance of the other accounting concepts such as historical cost, accrual basis and cash basis accounting etc. I am providing an overview on the importance of these concepts so that you can understand.

Historical cost is also important for the financial statements as it defines the unrealized appraisal of the assets. Through the use of the historical cost, users of financial statements can determine the difference between the current market value and the objectively determined value. It makes it easier to do valuation of the assets in the organization (Bernstein & Wild, 1999). Cash basis accounting helps to understand the actual cash flow in the organizations through various business transactions. The cash basis accounting is important for the organizations, which mainly focus on the cash flow instead of the net profit amount (Grice & Stephen, 2003). But an organization should use the accrual basis accounting concepts as it make sure to include every business transaction in the financial statements. Accrual basis accounting gives the most accurate financial information in the financial statements. The accrual basis accounting is also important for the long term planning of the organization, which is made with the help of the ...

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