Generally Accepted Accounting Principles and Financial Statements Essay

Submitted By dhanusam
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Pages: 6

Rapid hardware student performance for the financial year 2013 and 2012 has been generated and critically analyzed for the purpose of this report. Literature briefing has been described on the sources of finance available to an organization. Advantages and disadvantages of the sources available is discussed further to find out whether that particular finance is correct or not. Income statement and a statement of financial position were extracted from the data provided. Financial calculation of company regarding profitability, efficiency and liquidity has been defined and this important has been described and calculated in the report. Furthermore, performance indicator ratios are sub-categorized to get the extract of financial position of the business.

SOURCE OF FINANCE It is very important to get the sufficient finance to start a business otherwise business will get off the ground. There is not any agreed definition for the source of finance but those sources which provide finance service for more than a year can be defined as long term source of finance. Similarly, short term source are those which are available for less than a year. Most commonly sources of finance can be internal and external source in the business. Again, internal source are those available from the businesses, external are the one available outside the business. Practically some of the used sources of finance are listed below.

Short term source:
Bank overdraft
Over draft is the most flexible source of finance of if business has a healthy income it can be paid off quickly.
Credits ( Trade credit)

Sale of stock
Debt collection

Long term source:
Hire purchase
Share issue
Government fund

Bank Overdraft
Normally in some case, taking consideration of business account bank allows to overdraw the amount. In such cases business can even write cheques even if they don’t have any balance in the account. It is an external short or long term source of finance. When used for the short period of time, this type of source can be cheaper than bank loan. Bank will be charging interest depending upon the business account and the amount withdrawn along with good credit history. It might not be a suitable source to use if used over a long period of time.

Mortgage is the loans secured on the property over a certain period of time normally 25 years. Business will own the property after the last instalment is paid. This is one of the long term external sources of finance. Though such finance has some pros but has cons as well. It is one of the expensive sources of finance not suitable for small enterprise. If the business fails to pay the mortgage, property could be repossessed.

Users of Financial Statement and Reasons

Financial statements summarises the monetary data of the business which include income statement, balance sheet, changes in financial strategy and position (Morris, 2003). Financial position, changes and performance can be highly extracted from financial statements. Belkaoui, divide users into two groups (Riahi-Belkaoui, 2004, p. 133), as follows: direct users, consisting of: owners and shareholders of the economic entity; creditors and suppliers; the management of the economic entity; tax authorities; employees of the economic entity; clients. indirect users, consisting of: financial analysts and consultants; stock exchanges; lawyers; financial press and agencies; professional associations; unions; competition; the public; other government agencies.
Economic and accounting activities can be analysed through financial statements to success in business world. Internal users like managers, business owners, employers use such statements to take a long term decisions and purpose a business objective. Financial statements provide a comprehensive view of financial positions in business.