Final Project of accounting

in the accounting process, there may be economic events that do not immediately trigger the recording of the transaction. These are addressed via adjusting entries, which serve to match expenses to revenues in the accounting period in which they occur. There are two general classes of adjustments:

• Accruals - revenues or expenses that have accrued but have not yet been recorded. An example of an accrual is interest revenue that has been earned in one period even though the actual cash payment will not be received until early in the next period. An adjusting entry is made to recognize the revenue in the period in which it was earned.
• Deferrals - revenues or expenses that have been recorded but need to be deferred to a later date. An example of a deferral is an insurance premium that was paid at the end of one accounting period for insurance coverage in the next period. A deferred entry is made to show the insurance expense in the period in which the insurance coverage is in effect.
  
  
  
  
  
  
  
  

  Definition of 'Inventory'

  The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners. 
  
  

  Property, Plant and Equipment

  These are referred to as "fixed assets". In other words, these are the corporation's real estate, buildings, office furniture, telephones, cafeteria trays, brooms, factories, etc. They are the physical assets the company owns but can't quickly convert to cash. Depending on the type of business, these may or may not make up a large percentage of the total assets. Most of the assets of a railroad or airline will fall into this category (these companies must continue to buy railroad cars and planes to survive - both of which are fixed assets). An advertising agency on the other hand, will have far fewer fixed assets. They require nothing but their employees, some pencils, and a few computers. 
  
  
  

  Definition of 'Property, Plant And Equipment - PP&E'

  A company asset that is vital to business operations but cannot be easily liquidated. The value of property, plant and equipment is typically depreciated over the estimated life of the asset, because even the longest-term assets become obsolete or useless after a period of time.
  
  Depending on the nature of a company's business, the total value of PP&E can range from very low to extremely high compared to total assets. International accounting standard 16 deals with the accounting treatment of PP&E. 

  The Cash Flow Statement

  The Cash Flow Statement is divided into three distinct sections:
  

  • Cash flow from operations
  • Cash flow from investing activities
  • Cash flow from financing activities
  
  

  The Cash Flow Statement

  The Cash Flow Statement is the third report in the Financial Statement package (the financial triumvirate if you will). The Statement is fairly new to the financial statements financial package, as it was only added in 1987 when SFAS 95 (Statement of Cash Flows) was issued. Prior to 1987, companies were allowed to provide financial on a working capital or cash basis. For a while, many accepted that the adding back of depreciation to net income was an appropriate substitute for a cash flow statement, while others, especially creditors chose to use EBITDA (earnings before interest, taxes, depreciation and amortization). EBITDA is of course a measurement that maintained wide usage up to the late 1990s, before a string of corporate scandals (led by Enron and Worldcom) removed it from business pages.
  The Cash Flow Statement is divided into three distinct sections:
  

  • Cash flow from operations
  • Cash flow from investing activities
  • Cash flow from financing activities

  
  

  
  
  
  
  
  As is the case with the balance sheet, the cash flow statement does not form part of the double entry system of accounting. As a result, some students are often challenged in their attempts to prepare the statement, confusing the sources (income statement and balance sheet) from which the information should be drawn and where to place the information on the cash flow statement.
  

  The following will help you as you prepare your next cash flow statement:

  • Financial information thatyou'll need:
  •    The most recent income statement
  •    The most recent balance sheet
  •    The prior period balance sheet
  •    Any additional notes pertaining to the transactions of the company during the periods under consideration.
  • Note all the non-cash charges that were applied against revenue. The most common of these is Depreciation
  • Note all the non-cash income that was added to revenue. A common one is Profit from sale of fixed assets. This is usually "paper" profit that does not represent the flow of cash, and should therefore be deducted from income.
  • Compare the two balance sheets. Given the sectional nature of the cash flow statement (see above), you should divide your balance sheets into the three cash flow statement sections.
  • Deduct line items (except cash) on the prior period balance sheet from similar line item on the most recent balance sheet.
  • Deduct line items (except cash) on the prior period balance sheet from similar line item on the most recent balance sheet.
  • Use the following rule with changes in assets, liabilities and equity:
  •    An increase in an asset - A use of cash
  •    An increase in liability - a source of cash
  •    An increase in equity - a source of cash
  •    A decrease in asset - a source of cash
  •    A decrease in liability - a use of cash
  •    A decrease in equity - a use of cash