Generally Accepted Accounting Principles (GAAP) are a common set of accounting principles, standards, and procedures companies use to compile the financial statements. The principles help investors to analyze the business for investing purposes. However, there is room for accountants to make errors and distort figures, therefore, one must carefully scrutinize the financial statements (Investopedia). GAAP also allows businesses and investors to make comparisons between businesses within the same industry and year to year.
B. Historical Cost is an accounting principle requiring all financial statement items to be based upon original coast (Investorwords). The price paid for an asset at the time of purchase is essential for purposes of depreciation or appreciation. Assets and liabilities are often shown on the balance sheet at historical cost.
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C. Accrual Basis considers accounts payable and accounts receivable. The method is more conservative because it assesses financial status based upon cash available or on hand in lieu of cash projections like the cash basis method. The accrual method is also complicated, but it is the only accounting method recognized by GAAP (Bushman). The Cash basis accounting method is commonly uses by small business. Income is not counted until cash is actually received and expenses are counted when they are paid.
D. Current Assets are anything that can be converted quickly into within one year such as inventory, security, bonds, and receivables. Current assets are also known as liquid assets due to how quickly they can be turned into cash. A good example of this is inventory because most companies can sell their inventory within a year (SEC).
Current liabilities can be paid off within a year such as short-term loans, taxes, and accounts payable. In order to pay these debts, companies may have to convert assets into cash. The non-current assets can’t be converted into cash very quickly. They include buildings, property, equipment, and etc. Non-current liabilities cannot be paid off quickly because it includes long-term debt or bills that will take more than one year to pay.
Finding the financial statements for Amazon, Dell, and Toyota online was not very complicated given the links in the module. All of the statements are usable and well organized. In my opinion, Cash from Operating Activities is more useful because it shows how the income was actually generated during the year. Cash from Operating Activities is calculated by adjusting the net income to reflect depreciation expenses, deferred taxes, accounts payable, account receivable, and any extraordinary items (Investopedia).
Based upon the financial reports of Amazon, Dell, and Toyota, one could predict that Dell will continue to see an increase in its profits for fiscal year 2009. Amazon may also increase their earnings, but Toyota may remain the same for the coming fiscal year. However, as it stands to date, all the companies are making money and that is what management and investors really want to see.
Accounting Principles. Retrieved April 29, 2009 from www.accountingcoach.com/online-accounting-course/09Xpg01.html.
Amazon. Retrieved April 28, 2009 from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual.
Beginners Guides to Financial Statements. Retrieved April 24, 2009 from http://www.sec.gov/investor/pubs/begfinstmtguide.htm.
Bushman, Melissa. Cash Basis Versus Accrual Basis Accounting. Retrieved May 5, 2009 from http://www.associatedcontent.com/pop_print.shtml?content_type=article&content_type_id.
Dell. Retrieved April 28, 2009 from http://www.dell.com/content/topics/global.aspx/corp/investor/en/annual?c=us&s=corp.
Generally Accepted Accounting Principles (GAAP). Retrieved April 29, 2009 from www.investopedia.com/terms/gaap.asp.
Historical Cost. Retrieved April 29, 2009 from www.investorwords.com/2316/historical_cost.html.
Toyota. Retrieved April 28, 2009 from http://www.Toyota.com.jp/en/ir/index.html.
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