financial accounting

5 disadvantages of consolidated financial statements

5 disadvantages of consolidated financial statements.

Consolidated financial statements are the “Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and its subsidiaries are presented as those of a single economic entity”.

The following are shortcomings of consolidated financial statements:

Unprofitable companies are set off against

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Materiality principle in accounting

Materiality principle: This principle requires that the items or events having an insignificant economic effect or not being relevant to the user’s need not be disclosed. In other words, only significant items should be considered when preparing financial statements.

Significant (material) items are those items whose omission or nondisclosure will result in misleading the users of those financial statementsRead the rest

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5 errors which does not affect the suspense account.

A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded.

As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s).

When … Read the rest

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Four (4) factors that contribute to depreciation of fixed asset.

Depreciation is the allocation of the Depreciable amount of an asset over its estimated useful life. This allocated amount is charged against the income statement/Profit and Loss Account.

Factors that contribute to depreciation of a Fixed asset are:

  • Physical deterioration/Expected physical wear and tear.
  • Obsolescence/Economic factors.
  • Depletion (Natural resources such as mines)
  • Legal limit/Time factor.
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Purchase order – meaning

A purchase order is issued by customer requesting the seller to supply certain quantities of goods of specified description. The purchase order will also state the agreed price and delivery point and date.

Invoices are compared with the purchase order when invoices are received. The goods received note is issued after it has been ascertained … Read the rest

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cash from operating activities – meaning

Cash flow from operating activities involves cash generated by producing and delivering goods and providing services. Cash inflow includes receipts from customers for sales of goods and services (including collection of debtors). Cash outflow from operating activities include payments to suppliers for purchase of material and for services, payment to employees for services and payment to governments for taxes and … Read the rest

4 signs of over trading

4 signs of over trading.

Over trading arises when company expands its sales revenue fairly rapidly without securing additional long term capital adequate fro its needs.

The signs/symptoms of over trading are:

  • Payable increasing rapidly
  • Cash and liquid assets declining at fairly alarming rate
  • Receivable increasing, possibly more than proportionately to sales revenues.
  • Inventory increasing , possibly more than proportionately to sales revenue

The … Read the rest