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Finance accounting Essay Example

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Finance accounting

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Besides the company is listed on a stock exchange in the country, with a huge base of shareholders the company needs to frequently assess its financial statements to convey the right message to the shareholders and stay within the law.It is the financial obligations of the companies which on most occasions oblige management to address or review the financial statements of the company. Shareholders and the authorities will on most occasions want reports on the operations of the company. In addition the company has to follow the laid down procedure in coming up with the reports. Thus, this paper illustrates and analyses some of the policies, procedures and regulations which govern financial reporting (Oppermann, 2009).Every single transaction has two effects on financial systems. For instance, if someone purchases a ticket from Ryanair, he makes a payment in cash in return gets a ticket. This simple transaction depicts two effects from the perspective of both the seller and the customer. It is profound that the buyer’s cash balance will decrease at the amount he paid to the seller; on the other hand the sellers account will depict an increase in cash (Agtarap-San Juan, 2007).Accounting mandates the recording of both effects of a transaction in an entity’s financial statements. This is termed as the concept of double entry without which the accounting records will only be a partial reflective of the ideal information. Take for a situation in which Ryanair purchases new airplanes and there is no record of how the purchase was made; cash or credit. It is only through the double system entries that this critical information can be conveyed. The two effects of an accounting entry are known as the debit and credit section; according to the duality principle every debit results in a credit. Double entry is recorded in a manner that the accounting equation is always in balance; Assets- Liabilities= Capital (Banerjee, 2005).This system uses elements of both cash basis and accrual system of accounting. In a cash basis format a transaction is recognized when there is either incoming or outgoing cash. Reception of cash from a customer leads to recording of revenue while any payment which is made to the supplier ensures a record of assets or expense is made. However under the accrual basis revenue is recorded when it is earned and the expenses when they are incurred no matter any changes made in

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