Introduction, Review of Accounting Process and Financial Statements
This paper explains different types of accounting phrases and how they directly affect the accounting field. Phrases which are included and defined in the paper are Generally Accepted Accounting Principles, Contra-Asset Accounts, Historical Cost, Accrual Basis vs. Cash Basis Accounting, and Accounting Standards Codification. Definitions and examples of these terms are included as well as explanations of how they are important to financial statements. The financial statements of Samsung, Lockheed Martin and RTL Group will also be examined. Their financial data will be dissected in order to understand their success and highlight their operating activities.
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For example, if a house was purchased in 1980 for $50,000 it would be worth much more in 2011 because of the increase in value. Therefore, the historical cost of the house, in 1980, would be much lower than the current value it would hold if it was sold. Historical cost is important to financial statements because it indicates the actual worth of an item while taking into account the depreciation or the growth of the value of the asset. The value of items increase and decrease over time and these changes in value should be recorded to determine their true worth. Accrual based accounting refers to the method used to report earnings and income over the fiscal accounting reporting period (moneyinstructor.com). Accountinginfo.com describes accrual based accounting vs. cash based accounting, “Under accrual basis accounting, revenue is recognized when it is earned and realized. Revenue is earned when products are delivered or services are provided. Realized means cash is received while realizable means it is reasonable to expect that cash will be received in the future. Under the cash basis accounting, revenue is recognized when cash is received and expense is recognized when cash is paid.” Because of stocks, and many other monetary factors, many companies use the accrual based accounting system because it includes payment accounts and monies which are payable to them, even if they have not been received. The money which is owed the company is