Question

These questions reference the chapter 17 Goodwill Discussion questions 1. Why does Goodwill utilize performance ratio analysis? 2. Identify the three major financial statements prepared by the not-for-profit organization Goodwill. What’s the key difference between assets and liabilities? Which of the key financial statements features these categories prominently? 3. Identify the six steps in the accounting cycle. What are the key reasons that firms do ratio analysis?

Answer 1

1. Goodwill to Assets ratio is ratio measures how much goodwill a company is recording in comparison with its total Assets.

Its significance is on the intangible asset. It is a percentage of intangible assets against total assets.

If the Tangible portion is more means assets have more liquidity and is vice versa for intangible assets.

2.

Statement of Financial position:

A Nonprofit statement of financial position reports organization Assets and liabilities in some order of when the asset will turn to cash and when the liabilities need to be paid.

Usually, it is prepared at the end of the period. This is similar to a Balance sheet prepared by Business entities.

Statement of Financial activities:

As the Nonprofit entities are with a motive of service to the public.It records all the receipts and expenditure that they had spent on Service activities. Systematically recording all those receipts and Expenses in this statement.

Statement of CashFlow:

In this service organization will record all the cash receipts and cash payments it has made during the period. It is similar to a cash flow statement prepared by Business entities.

Asset: Any resource with economic value that is expected to provide future benefits (like generate cash flow, improve sales, etc.) and is owned and controlled by a company can be termed as assets.

Laibility:

A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Balance sheet contains the Total Assets & Total liabilities.

6 Steps in processing Financial transactions pertaining to Accounting period are:

(1) analyzing the transactions as they occur,

(2) recording them in the journals,

(3) posting debits and credits from journal entries to the general ledger,

(4) adjusting the assets with a trial balance,

(5) preparing financial statements, and

(6) closing the temporary accounts.

The significance of ratio analysis:

The basis for financial analysis, planning, and decision making are financial statements which mainly consists of a Balance sheet and profit & loss account. The profit & loss account shows the operating activities of the concern and Balance sheet depicts the balance value of the acquired assets and liabilities at a particular point if time.
However, the above statement does not disclose all the necessary and relevant information. For this purpose the material and prevalent information necessary for ascertaining the financial strength and weakness of the enterprises it is necessary to analyze the data depicted in the financial statment.