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Relationships between the financial statements

1. With regard to financial and accounting procedures, is there a difference between what you are ethically obligated to do and legally obligated to do? Give an example and be specific.

2. What is the interrelationship among the four financial statements? Explain and articulate the relationships between the financial statements.

3. What methods have we learned about that are used to analyze an organization¿s financial condition and performance? How will you use these analyzing tools in your career?

4. We have learned about the value of understanding a company's financial statements in order to make informed business decisions. We have also learned about financial ratios and trend analysis. How do the two areas work in concert together to help paint the overall financial picture of a corporation¿s health?

Solution Preview

1. You are auditing a client who has explained to you that he wants to record a large sale in December rather than waiting until January. The actual order was not signed until January but the client assures you that the deal was 'sewn up' before the end of the year. He says the only reason it wasn't signed was because one of the parties was out of town the last week of the year. Ethically, the sale should not be reported until next year. I don't think it is a legal issue at all, but simply a timing difference. The point is that a code of ethics will preclude any illegal activity, of course, but will include professional responses which may be more restrictive than legal limitations.

2. Using the accounting formula of A = L + E, the balance sheet discloses ...

Solution Summary

In a 531 word response, the solution provides an in-depth look at each question plus examples, as applicable. It is a clear and easy to understand response.

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