Overview of accounting analysis - 1529 Words

HOMEWORK 3: DISCUSSION QUESTIONS 1. A finance student states, â€Å"I don’t understand why anyone pays any attention to accounting earnings numbers, given that a ‘clean’ number like cash from operations is readily available.† Do you agree? Why or why not? I disagree with the finance student, because net income forecasts future cash flow and is informative. a. Net income forecasts future cash flow better than current cash flow, and does so by recording transactions associated with cash consequences when the transactions occur, rather than when the cash is received or paid. To compute net income, the effects of economic transactions are recorded on the basis of expected, not necessarily actual, cash receipts and payments. b. Net income is†¦show more content†¦b. Accounts Receivable Days Ratio = Accounts Receivable Average Sales per Day The company that ships its products evenly throughout the quarter and has steady sales will have a lower accounts receivable days ratio. c. Cash Ratio = Cash + Short-Term Investments Current Liabilities The company that ships its products evenly throughout the quarter and has steady sales will have a higher cash ratio. 5. A. If management reports truthfully, what economic events are likely to prompt the following accounting changes? a. Increase in the estimated life of depreciable assets. If managers find out that the actual life of the depreciable assets lasted longer than was expected, managers will increase the estimated life of depreciable assets. b. Decrease in the uncollectible allowance as a percentage of gross receivables. The firm will decrease the percentage of uncollectable allowance when it receives orders from reliable customers. In contrast, the firm will increase the percentage of uncollectable allowance when it receives orders from unreliable customers. c. Recognition of revenues at the point of delivery, rather than at the point cash is received. A firm could recognize revenues at the point of delivery rather than at the point of cash receipt when its customer’s credit improves or its customer’s cash payment is not aShow MoreRelatedAnalysis: Overview of Accounting Paper1259 Words   |  6 PagesAnalysis: Overview of Accounting Paper Running Head: Accounting paper March 25, 2008 MBA503 / Introduction to Finance and Accounting Accounting Paper Introduction The financial information is a very important matter in a company success. Allow them to see if they have been successful in the past, in the present and help them to predict a future performance of you company. The form, the use and the people involve with the financial and accounting information in a companyRead MoreAcc 201 Project 1 Bank Memo1225 Words   |  5 Pagesthe third quarter has generated high profits from the sale of our products. 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