Acc5001 Accounting Principles And Practice Assessment Answers

Answer:

Introduction:

Financial statement of organizations provides various stakeholders with the relevant accounting information that helps in making better financial decisions. An organization has internal and external users of their financial statements. Owners, management and employees of organization are the internal users and external users comprise of tax authorities, creditors, regulatory authorities, customers and investors. Information to the external users are communicated by way of financial statements. The purpose of financial statements is to provide information’s that help in catering the needs of diverse users of accounting information that assist them in making sound financial decisions (Baker & Haslem, 2015). Selected organization for the analyzing the various statements by various users is emirates airlines.

Various types of financial statements used by different users:

Balance sheet of statement of financial position:

There are various elements involved in the statement of financial position and this comprise of liabilities, assets, equities, capital expenditures. Shareholders and investors uses the statement of financial position for assessing the entity’s financial position. Creditors uses this financial position in determining the financial risk, liquidity risk, business risk and credit risk of entity. It helps them in assessing various risks associated with business (Ehrhardt & Brigham, 2016). There are some trend of the business help in identification of various problems and analysis of the statement will help in predicting the volatility and timing of the future earnings of Emirates airline.

Statement of stockholders equity:

The balances of stockholders as listed in the balance sheet is depicted in the statement of stockholders equity. It also gives the detailed explanation of various changes that have been made in different items. Management uses the statement of stockholders equity for reviewing the retained earnings and dividend payments made to the shareholders. Falling retained earnings needs to be checked by organization and whether Emirates airlines has sufficient funds to pay off their obligations. Statement of stockholder equity is mainly analyzed by external users such as creditors, customers and other institutions for understanding the total change in equity balance during a period. Creditors needs to know the losses incurred by organization that requires contribution of owners for maintaining minimum level of equity required for meeting the debt obligations (Henderson et al., 2015).

Profit and loss statement or income statement:

The profit and loss statement is reporting of the expenses and income and the resultant profit and loss that is earned during an accounting period. Main elements of income statement involves cost of sales, revenue. Government and tax authorities relies on income statement for verifying the accuracy of the financial accounting of Emirates. Government is able to track the picture of financial health of company that is indicative of the growth and future direction of company. Accurate income statement of Emirates is useful to tax authorities as it helps in providing easy assessment of their financial situation. Information imbibed in the income statement provides succinct information to the tax preparers, accountant or internal service revenue for carrying out evaluation of tax situation of Emirates. It helps the tax authorities in determining the tax liability of organization.

Management are provided with number of insights for increasing the income, improving the operations, reducing the expenses and ensuring compliance. It helps management in noting down the trend in expenses and sales and various important aspects for improving the operations of emirates and setting the path towards generation of profitability (Lusardi et al., 2017).

Cash flow statement:

Statement of cash flow provides information about inflow and outflow of Emirates airlines during an accounting period. There are three different types of cash flow that involves investing cash flow, operating cash flow and financing cash flow. Cash flow statement is evaluated by creditors and is useful to them as it determines the money available to make payments to creditors. Cash flow is also important to shareholders as it is a strong indicator of the financial position of country. Investors make use of cash flow statement for comparing the operating performance of Emirates airlines with some other organization (Lusardi & Mitchell, 2014). Cash flow enables the management of organization to develop the models for comparing and evaluating the present values of cash flow of Emirates airlines. Furthermore, cash flow helps in highlighting the Emirates management priorities.

Conclusion:

Financial statements of emirates are considered as an invaluable tool for taking business decisions and are used by both external and internal users. Various stakeholders evaluate the ability of organization to meet various financial obligations. Financial statements helps both external and internal users in evaluating the financial performance of Emirates airlines. Different areas of financial statements focuses on different areas of financial performance that are of relevant importance to different users. .

Reference:

Baker, H. K., & Haslem, J. A. (2015). Information needs of individual investors.

Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach. Cengage learning.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44.

Lusardi, A., Samek, A., Kapteyn, A., Glinert, L., Hung, A., & Heinberg, A. (2017). Visual tools and narratives: New ways to improve financial literacy. Journal of Pension Economics & Finance, 16(3), 297-323.

Nobes, C. (2014). International Classification of Financial Reporting 3e. Routledge.