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ACC501 - Accounting for Decision Making Case 1 (Essay Sample)

Instructions:
Case assignment expectations: This case will give you experience in the format of our case method. The student will be begin to learn some core foundational accounting principles and terminology. In addition, the annual report that is required by the SEC to be filed by all publicly traded organizations is introduced. LENGTH 3 pages typed and double-spaced The following items will be assessed in particular: There are two parts to this case. Part I. Search the course background information, the Internet and/or the Cyber Library. 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. Part II. 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. please copy past each one of these separtly and open them. 1. SAMSUNG (http://www.samsung.com/us/index.html) http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualre port/IR_Annual2007.html http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualre port/downloads/2007/10_SEC_07AR_E_FinancialStatement.pdf 2. Lockheed Martin (http://www.lockheedmartin.com/) http://www.lockheedmartin.com/investor/general_information/annual_repor ts.html http://phx.corporate-ir.net/phoenix.zhtml?c=83941&p=irol-contact 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. source..
Content:
Part I
General Accepted accounting Principles (GAAP)
These are set of accounting principles, standards and procedures used by companies to compile financial statements. They are basically a combination of boards’ policies and the commonly accepted ways of recording and reporting accounting information. With GAAP accountants are held accountable (Financial Accounting Standards Board 1981).
Double Entry Accounting
This is a method of record keeping that enables one to record the movement of money from and where it is going to. In this case money is never gained nor lost. Double entry principle dictates that a transaction is only complete when there are two parties involved that is, there must be a source account and a destination account.
Historical Cost
This is a measure of value that dictates the price of an asset depicted on the balance sheet, must be based on the original cost that that asset was acquired at by the company. For example, if a lorry for the company was bought at $50,000 in 2005 and its expected value in 2011 is $15,000, the asset is still recorded on the balance sheet at $50,000.
Accrual Basis vs. Cash Basis Accounting
Accrual Basis accounting is sometimes referred to as an all-events test accounting whereby the revenue earned and expenses incurred are either recorded at an earlier date say in the beginning of the year or at a later date say at the end of the year. This principle operates on promises to pay or expectation to receive basis. It only has a limitation that revenue can’t be recognized until it’s earned.
Cash basis accounting is whereby cash receipts and payments are recorded at the time of occurrence. This method of accounting is simple and inexpensive to implement and utilize. Although this method is simple to use it does not take into consideration the accounting principles; the revenue recognition principle that recognizes revenue when earned not when cash is received and the matching principle that requires expenses to be matched against the related revenues, not at the time the cash is paid (Financial Accounting Standards Board 1981).
Current Assets and Liabilities vs. Non-Current Items
Assets are generally properties owned by the company to provide future benefits to the latter. Assets are classified into current assets and non current assets.
Current assets are things owned by the compan...
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