Question

1. Today corporations are required to send their stockholders an annual report. Assume that you are a prospective investor trying to decide if you should invest in a specific corporation. What type of information is contained in an annual report that would help you decide if this is the right investment for you?
2. Why are current assets listed before fixed assets on the balance sheet?
3. What are the differences between managerial accounting and financial accounting? From a career standpoint, which type do you prefer and why?
4. Write the accounting equation. Then define each term.

Answer 1

1) What type of information is contained in an annual report that would help you decide if this is the right investment for you?

An annual report is a document prepared by the company to deliver important corporate information to its shareholders. It will typically contain a letter from the chief executive officer, data regarding the company's finances, and information about business activities during the previous year

Components of an Annual Report

Investors should always read the Annual report if they're interested in investing in a public company. The report begins with a detailed description of the business, followed by risk factors, a summary of any legal issues, and the numbers.

Often, the most essential components of the annual Report include:

• Business (a description of the company's operation)
• Risk Factors
• Legal Proceedings
• Selected Financial Data
• Management's Discussion and Analysis of the Financial Condition

As an investor following information should be analysed carefully before making any investment in the company

Firstly look at the business description and know what the company does, who its customers are, and the primary industry in which it operates.Secondly assess how the company has performed over a period. Also, the financial statements should indicate whether the balance sheet has become stronger or weaker over time. Get an idea of management’s strategic plan for the coming year. How will management build on the company’s success? This plan is usually covered in the beginning of the annual report — frequently in the letter from the chairman of the board. Furthur look for Unusual Risk Factors. Potential investors should also consider any risk factors associated with the company. One risk factor is legal proceedings that the company might be facing.  Unusual risk factors that require greater attention are, for example, if the company generates a substantial portion of its revenue from just one or two customers.In addition, the Legal Proceedings section will reveal any significant lawsuits affecting the company. While legal issues should be assessed, they may not be as severe as they seem. For a billion-dollar company, a pending lawsuit for damages of $10 million is often an unavoidable part of doing business.

2)Why are current assets listed before fixed assets on the balance sheet?

Those assets that convert quickly into cash, usually within one year of the balance sheet's creation, are called current assets.Some of a company's assets are cash or things that can be converted to cash quickly. This gives assets priority when being classified on a balance sheet, since converting assets to cash may be a priority with lenders or potential buyers. The ability to convert assets to cash is called liquidity and it's measured roughly in units of time.

Balance sheets list assets in order of liquidity. Cash tops the list, since it requires no conversion. Stocks and other investments that can be sold in a few days are usually next. Money owed to the business through normal sales is considered by the company's sales terms, so receivables may have a 30- or 60-day liquidity, for example. Inventory might take a month or two to be converted through turnover and sales. In some cases, inventory may be resold quickly, so its place in the order of liquidity may vary by company.

Fixed assets, such as equipment, require a market for selling, and so usually rank lower on a balance sheet, and goodwill is only realized upon sale of the business. It is listed near the bottom for that reason.

What are the differences between managerial accounting and financial accounting? From a career standpoint, which type do you prefer and why?

Financial accounting VS Managerial Accounting

Point of difference	Financial Accounting	Managerial Accounting
Objectives	The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date	The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals.
Users	Financial accounting produces information that is used by external parties, such as shareholders and lenders.	Managerial accounting produces information that is used within an organization, by managers and employees.
Legal requirement	It is legally required to prepare financial accounting reports and share them with investors.	Managerial accounting reports are not legally required.
Rules	Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards.	Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are.
Focus	Financial accounting focuses on history; reports on the prior quarter or year.	Managerial accounting focuses on the present and forecasts for the future.

When we think of accounting, the first things that cross our mind are the financial statements: (Balance Sheet, Income statement and the Cash Flow). While these form the structural system, accounting is more than just financial statements and reporting standards. Apart from fulfilling statutory compliance, one of the main objectives of these statements is to provide insights for decision-making and ensuring operational efficiency of an organisation. While Financial Accounting address the primary goal of statutory compliance, Management Accounting takes care of the later.

Now that you know the major differences between Financial Accounting and Management Accounting, it is easier for you to understand the nuances of each role and its importance within the organisation. From a career perspective, both these roles are highly sought after in today’s time. All you need is a reality check and bit of soul searching to find out which one of these two is more aligned to your skill sets. With global certifications like ACCA and CIMA for Financial Accounting and Management Accounting, respectively, you have an opportunity to take your accounting career to new highs and be an asset to your organization.

Write the accounting equation. Then define each term.

Accounting Equation

Assets = Liabilities + owner's Equity

Assets are a company's resources—things the company owns. Examples of assets include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner's (or stockholders') equity.

Liabilities are a company's obligations—amounts the company owes. Examples of liabilities include notes or loans payable, accounts payable, salaries and wages payable, interest payable, and income taxes payable (if the company is a regular corporation).

Owner's or stockholders' equity reports the amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners.