15.1: "The income statement answers type of questions about performance for a span of time (often a month, a quarter, or the year)". (Horngren, 2008, p686)
It said that company make profits or not - that is, whether the net income (actual revenue) positive or negative. That is why the income statement is often seen as profit and loss statements. In addition, it also reflects the ability of the company's profits at the end of a specific period - usually the last month, quarter or fiscal year of that company.
"The balance sheet answers type of questions about financial position at an instant of time.'' (Horngren, 2008, p686). It is a brief summary of what the enterprise / owns (assets) and what the business debts at a certain time.
15.3: Balance sheet and income statement linked together through net income in a period and the increase or reduction of owner's equity (moneyinstructor.com, 2010, p1). "Each balance sheet is a snapshot at a point in time" (Horngren, 2008, p686). Each balance sheet shows assets, liabilities and owner's equity of company. Each income statement summarizes the events cause changes in equity. Through income and equity accounts which balance sheet and income statement reflects the total financial picture of the organization.
15.4: This statement is incorrect because:
Ownership Capital = Paid-in Capital (Ownership Investment) + Retained Earning
"Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings"( wikipedia.org). So two factors effect to Ownership Capital but not Net income.
15.13: Profitable operations create the ability to pay dividends. The account retained earnings increases a company accumulates profits and decrease as it pays dividends. But dividends are distributions of assets to stockholders. . (Horngren, 2008, p696) (which can include money, stock or other assets). When dividends are paid according to the distribution policy will lead to a reduction of Fund's net assets which is mainly paid by cash.
15.16: Accountants who perform professional accounting measure / reflection, processing and communication of financial information, business results and cash flows generated by an economic unit, to help useful for making economic decisions of users of accounting information whether they are inside or outside the enterprise such as managers, investors, tax authorities, lenders and other stakeholders ( Saeed, 2010) . If user can't believe the financial information which accountant supply, decisions can wrong or no value. So ethics and integrity important to accountants.
Question 3 (16.A1)
Question 4 (15.42)
Question 5
16.4: I don't agree. Because depreciation is a non-cash expenses significantly reduce the value of assets recorded in the balance over time the accounting estimates used assets. "The accumulated depreciation is the sum of all depreciation to date on assets." (Horngren, 2008, p730). By this method, the amount charged to expenses are accrued and reflected on the balance sheet as deductions from the original cost of assets. Although depreciation accounts are listed as expenses in the income statement, but the company actually owns the funds are not - unlike other types of expenses: wages, purchases, utilities, post Free ... Depreciation is merely a convenient (though not perfect) to identify any items of property, depreciation or gradual loss of production value and must be replaced Accumulated depreciation amount interpret the value of a property expires, it is not cash.
16.7: I don't agree. Let's see an example: You have to pay interest expenses in 2009 with a value of 20 million. If interest costs are loans for working capital (it means capital has a rotation-smaller than accounting period, for example the loan to purchase inventory), then these expenses fully accounted as expenses in the public interest. If in the event this loan is to finance the purchase of a car (finance long-term assets, are used in many accounting period), the interest amount is capitalized, recorded as the value of the car, then will be distributed to the public business later forms of depreciation.
So capitalize means not immediately charged to expense in the period, but it will be amortized into the expense after the period.
16.8: I agree. Because "goodwill is the excess of the cost of an acquired company over the sum of the fair market values of it identifiable individual assets less its liabilities." (Horngren, 2008, p733) So it reflects the fact that, a company can have some value more than the real value of assets, as the company's reputation or economic potential. Such goodwill was incurred in the financial statements when company buys a property with a value larger than the reasonable value . Goodwill in accounting may have nothing to do with the personality of the manager or employees.
16.16: Purposes of the statement of cash flows:
It shows the relationship of net income to charges in the cash balance. Cash balance can decline despite positive net income and vice versa.
It report past cash flows as an aid to predicting future cash flows, evaluating management's generation and use of cash, and determining a company's ability to pay interest and dividends and to pay debts when they are due. (Horngren, 2008, p740)
So, the cash flow report is an integral part of the financial statements, reflecting the formation and use of money generated in the reporting period of the business. The cash flow statement provides information to help users assess the changes in net assets, financial structure, the ability to convert assets into cash, liquidity and the ability of enterprises in the cash flows generated during the operation.
16.29: I don't agree. Indirect method, Depreciation can add to net income when computing cash flows from operating activities. But depreciation is an allocation of historical cost to expense. So, depreciation does not entail a current outflow of cash, it would have no direct influence on cash provided by operation. (Horngren, 2008, p754). So, the depreciation has a direct impact on the financial statements, in particular to the taxable income of the business. However, depreciation is not the actual expenses in cash, which can only be deducted on the books, so I say do not affect the cash flow of businesses without impact of taxes payable.
Question 6 (16.56)
Question 7
1.What went wrong at One Tel?
Actually, there are many reasons such management structure, expanding target, so on. But the most important reason is they try to be a mobile network which likes a gamble to them. Moreover, they expanded their market to the global market. They claimed that they made profits but they never made it real profits definitely. And they bankrupted.
2. What are the major financial reports?
Financial reports have four major:
Statement of finance performance. It shows the revenue, expense and income of company over some period of time.
Statement of finance position. It shows 3 main things: What's company owner? (It's asset). Amount of owner to outside company (it likes liability). Where the money come from? (profit and retained of company). And who're owner's company? ( it's shareholder's equity)
Statement of cash flows. It shows net cash from 3 activities: Investing activities (the purchase and sale of company long-term fixed assets), Financing activities (the borrowing, issue of share and repayment of long-term liabilities). And "cash and cash equivalents at end of year"
Independent audit report. It is the report verification activities and to express opinions on the situation through activities of financial statements and other documents related books to find out the critical flaws in company but all other decisions by the user to decide.
3. Why are profits important? Why is cash flow important?
Profits show how a company operated effectively and efficiently. Moreover, shareholders would like to be returned from their investment which means they can know they have profits or not. By this way they can make decision to reinvest and they want to make sure their profits grow in the future.
Cash flow formats and uses of generated money in the reporting through the period of the business, evaluating business enterprises make money, figure out the relationship between net profit and net cash flow, liquidity analysis of company.
4.How did One Tel show a positive cash balance?
They use accrual accounting method, estimate revenue how much profits company earned in period.
5. What are the characteristics of a good internal control system?
5 characteristics of a good internal control system:
"Control Environment" ( COSO,2010, p1)
Directors understand the importance of integrity and professional ethics, about the need rational organizational structure, assignment of work clearly and promulgate rules and regulations, production process
"Risk Assessment" (COSO, 2010, p1)
Managers identify risks and potential existence. To analyze the impact of including frequency and determine measures to manage and reduce harmful effects.
"Control Activities" (COSO, 2010, p1)
Ensure that the directives of the leaders in reducing risk and enabling organizations to achieve the set objectives and implement across the organization seriously
"Information and Communication" (COSO, 2010, p1)
Ensuring accurate, timely, complete, reliable, easy to grasp and properly authorized person.
"Monitoring" (COSO, 2010, p1)
To monitor and evaluate properly the quality of implementation of internal controls to ensure it is implemented, shall be adjusted to changing environments, improved when defective.
Question 8
17.11: Not sure to recognize goodwill better than to write up assets to their fair market value but the recognition of goodwill will avoid the depreciation cost incurred, compared to the write-up value of assets
17.15: Two ratios are: Operating return on sales and Total asset turnover.
Pre-tax operating rate = Operating return X Total
of return average on total assets on sales asset turnover.
(Horngren, 2008, p805)
17.19:
This statement is uncertain because the accounting information (the software development cost) was made public, it will affect the price of IBM's stock, although applied to price-earnings ratio to income.
17.20:
if I were an investor, I will not get fooled by the statement because:
In the process of reporting financial, companies often have to use a lot of accounting estimates. Value estimates often have a direct impact to profitability in the period of the company. Change the depreciation method to reduce the depreciation which increased income in the period as one of measures to create the illusion of prosperity companies, the stock price can increase. But actually not to increase income but merely transferring profits from the period after the current period, is inevitable consequence of the following year profit will be reduced.
Quesion 9: (17.36)
Question 10
Digital Dashboards
Introduction
How do managers approach the need information quickly? A digital dashboard will help them in the shortest time.
Body
Definitions
Digital dashboard is an information portal of a computer, a tool to determine the situation of enterprises through the display of data and business indicators, a summary of business conditions and issue alerts to help business management and operating better. (encyclopedia.thefreedictionary.com, 2010, p1)
Types
Today, there are three types of digital dashboard is used the most: "stand alone software applications, web-browser based applications, and desktop applications also known as desktop widgets." (en.wikipedia.org, 2010, p1)
History
In the 90s, with the Internet boom and the development of graphics, the Digital dashboard is known as an effective tool for businesses in many fields such as business, education, health, … . However, it has been formed "in the 1960s and developed in earnest at the Massachusetts Institute of Technology in the 1970s" (Kenney, 2010).
Benefits
Benefits that it brings to the enterprise is not small, it is an effective means of analysis, providing copies of data to managers and staff can see a quick overview of enterprise, simultaneously display the detailed report to identify new trends and strategic objectives. Besides saving time when present and find out.
Disadvantages
But it also has some disadvantages such as cost implementation is not low, when large amounts of information, it may become slow and difficult management, data security is not high.
One example
(enterprise-dashboard.com, 2010)
This Digital dashboard presents an overview of business projects related to management of hospital operations with the functions of each department and service. Through which it demonstrates social responsibility in building a system hospital management
Conclusion & Recommendation
Digital Dashboard is a great way to improve the efficiency of users and is becoming popular around the world.
Bounded rationality in decision making.
Introduction
Decision making for people in general and management in particular is a difficult job
Decision-making process that only considers the data instead of considering all avoid making the problem more complex - the reasonable limit.
Body
Definitions
Bounded rational is the concept which given when an individual has cognitive limitations, limited in time or external impacts in a logical way to decision making.
Model of Bounded rationality in decision making
According to Simon (1990) that, the cognitive abilities of human information are limited. Administrator only thinks within the limits of their ability to recognize situations. Bounded rationality in decision making because these factors:
Limit of thinking. People cannot know everything, by time-limit, Information-limit, resources and intellectual ability. Human cannot study all plans and to then select the best plan, only identified and evaluated in a plan the best ones available are found.
Intuition. Intuition based on process of practice and experience of each individual. It is used to quickly understand situations and offer solutions without having to analyze
Limited Search. People tend to consider the plan until they find one that seems adequate.
Limited Information. There is no adequate information necessary (Simon,1990)
For example,
When you come friend's home and see they have a Sony TV pretty and reasonable price. You have one needs to buy a TV like that. You decide to buy one the same. When you come to shop, sellers show you other TV that is also the same price but better, more durable and beautiful. But you still choose the Sony TV because your mind has limited the previous decision.
Meanwhile Gerd Gigerenzer (2002) consider how human decisions may be made to optimize a reasonable way of their limitations. And building models to optimize how people can cope with the inability of them. (Gerd Gigerenzer, 2002, p1). But for the managers can choose their method as test, predict or based on past experience to choose the best possible decisions to solve problems without using optimization methods.
Conclusion
Thus, understanding and realizing about Bounded rationality in decision making will help individual or managers have the right and correct decisions.
