M1 OAE Correction

OAES Assigned Questions

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1-1: Explain why stewardship is an important concept

Stewardship is an important concept in financial accounting that ensures that all the amounts received and paid together with the resulting amounts are accounted for. Business or a company is usually started by the shareholders who are suppliers of capital (Keiso et al, 2010). Stewardship helps to ensure that that the company’s finance managers are accountable to the shareholders and liability is reduced in turn. Stewardship helps ensure that cooperatives remains intact as none of the members is allowed to break out of a cooperative because for personal benefits.

1-2: What three traditional functions does accounting fulfill?

The traditional function that accounting fulfills are identifying, measuring and communicating information to users of accounting information to help them make informed decisions regarding finances. Financial information is identified through double entry book keeping system which records financial transactions. Financial performance measuring is done through the records of loss and profits and other financial statements that indicate the financial status. Financial information is communicated through the creation of financial information. Accounting has generally made it easier to identify, measure, and communicate financial information to those who are in need of it such as the shareholders and investors.

1-3: What types of groups regulate financial accounting statements?

financial accounting statements are regulated by the professional regulation bodies, company laws which states which set of information the financial statement can contain, the EU directives which requires that financial statements are prepared according to the international accounting standards by 2005, and the stock exchange regulations which contains the rules and regulations that govern financial statements. Professional regulation bodies, EU directives, company laws and stock exchange regulations are some of the groups that regulate financial accounting statements.

1-4: What is managerial accounting and how is it different from financial accounting?

Managerial accounting is the process of identifying, measuring, analyzing and communicating financial information for the purposes of meeting the company’s goals. It entails all the activities and information intended to inform management of how the business is operating (Drury, 2013). Managerial accounting information is obtained from information relating to the costs of goods and services purchased by the company. The difference between financial accounting and managerial accounting is that managerial accounting provides both qualitative and quantitative information to be used by managers within the company to make decisions while financial accounting gives a fair view of the company’s financial status to various external parties.

2-1: Explain value based management and shareholder value

Value based management is the kind of management that aims at maximizing shareholder and the idea of shareholder value creation is the center of the company’s operations. The idea directs the company’s strategies, structure, and processes and also dictates the measures to be used to monitor performance (Drury, 2013). The first step in value based management is to come up with a strategy that would achieve a competitive advantage and maximize the returns to shareholders. Shareholder value is the value enjoyed by shareholders because they have shares in the company thus has an advantage whenever a company grows sales, earnings and free cash flow. Increasing shareholder value increases the total amount of shareholders equity section in the balance sheet.

2-2: What are some of the rights of shareholders in companies today?

The rights that shareholders of company’s stock have may vary from one place to another depending on the location of the company but there are those common rights that hardly change regardless of the location. Some of these common rights include the right to share in company’s profitability, income and assets, general meetings voting rights, rights to newly issued shares, and the right to control and influence the company’s management selection.

2-3: What is a financial audit?

Financial audit is the examination of the financial statements to ensure that they meet the international set or company set accounting criteria and standards. Auditing is done to check, discover, verify and control some or other aspects in an organization (Dutta, 2004). Financial audit is done by an auditor, an individual who is authorized to examine and verify accounts.

3-1: What elements or categories are on each of the financial statements?

Some of the common elements in each of the financial statements are assets, liabilities, equity, income and expense. Assets can be tangible, intangible, cash and cash equivalent or financial assets depending on the company. Assets have the potential to contribute directly or indirectly to the cash flow and this is the future benefit of having assets. Liability is the second element in the financial statement which is just a duty that pending to be performed and is likely to cost the company. Equity is the amount that remains in the assets if the entity after deducting all its liabilities. Income entails the revenues and gains and finally the expenses which arise in the course of ordinary activities of the entity and losses.

3-2: Which general ledger accounts would be affected by the purchase of goods on credit for later resale?

The cash ledger because credit entries will be settled once the goods are resold.

3-3: Which general ledger accounts would be affected by the purchase of a computer for business on credit?

Payable ledger since credit entries are made in the payable ledger.

3-4: How much does inventory change?

Inventory change= purchase of inventory- cost of inventory sold

= $15000 - $ 8000

= $ 7000

3-5: How much does payable change?

Payable change= purchase of inventory on credit – cash paid back for credit supply

= $15000- $ 10000

= $ 5000

3-6: What is the change in receivables?

Change in receivables= sales of spare parts on credit- cash paid bys customers

= $20000- $ 12000

= $ 8000

3-7: What is the change in net profit?

Change in net profit= sales on credit- cost of the spare parts sold

= $ 20000- $8000

= $ 12000

3-8: How much does the bank account change?

Bank account change= cash paid by customers to account- amount paid to supplier

= $12000-$10000

= $2000

References

DRURY, C. M. (2013). Management and cost accounting. Springer.

Dutta, M. (2004). Cost Accounting: Principles And Practice. Pearson/Education.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting: IFRS edition

(Vol. 2). John Wiley & Sons.