Accountings for manager Essay Example | Topics and Well Written Essays - 2500 words

Accountings for manager - Essay Example Financial statements are prepared with the intention of providing information that can be used by investors for taking decisions relating to investments. At the end of every financial year business concerns prepare Profit and Loss a/c and Balance Sheet.The P & L a/c reflects the result of the business operations for a period of time and balance sheet gives a summary of the assets and liabilities of a business undertaking on a particular date. However, these two statements fail to explain certain major transactions that take place during the year. Balance sheet is a statutory statement. It does not sharply focus on those major transactions that took place behind the balance sheet change. One can draw inferences from the balance sheet about major financial transactions, only after comparing the balance sheet of two accounting periods. Thus, it has to prepare a statement explaining the reason for change in financial position from one accounting period with another.A cash flow statement is a financial statement, which shows inflows and outflows of cash of a firm. It is a description of the sources and applications of funds in business activities during an accounting period. It gives explanations to changes in the balance sheet figures between two accounting periods. Thus, managers can easily understand the changes in cash position between two accounting periods. It is also known as statement of changes in financial position.... A cash equivalent is that investment which has the maturity of three months or less from the date of acquisition. From the equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date). Bank overdrafts which are repayable on demand and which form an integral part of an enterprise's cash management are also included as a component of cash and cash equivalents. (Summary of International Financial Reporting Standards 2008). The main principles specified by IAS 7 for the preparation of cash flow statement are as follows: 1. Operating activities are the main revenue-producing activities of the enterprise. So operating cash flows include cash received from customers and cash paid to suppliers and employees [IAS 7.14]. 2. Investing activities are the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents [IAS 7.6]. 3. Financing activities are activities that alter the equity capital and borrowing structure of the enterprise [IAS 7.6]. 4. Interest and dividends received and paid may be classified as operating, investing, or financing cash flows, provided that they are classified consistently from period to period [IAS 7.31]. 5. Cash flows arising from taxes on income are normally classified as operating, unless they can be specifically identified with financing or investing activities [IAS 7.35]. For operating cash flows, the direct method of presentation is encouraged, but the indirect method is acceptable [IAS 7.18]. (Summary of International Financial Reporting