MA2-492 - to the company’s current market value From what...

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MA2-49 When cash spent has an immediate effect in the company’s financial situation it is registered as expenses in the income statement. There are instances however when the effect of cash spent is not expected in the immediate future. In those cases the acquired product is registered as an asset in the balance sheet. It is the company’s responsibility to properly track the flow of costs from the balance sheet to the income statement and GAAP allows them some flexibility in the process (Easton, Halsey, McAnally,Hartgraves & Morse, 2010). Unfortunately some companies like WorldCom and Enron have made wrong use of said flexibility by not transferring costs as quickly as they should have. Not every company however has precisely abused GAAP requirements. Easton et al., states that some companies argue that it is a good thing to be able to manage the flow of costs at their convenience. The end result is a better looking financial situation when presented to investors and creditors. GAAP also establishes a company’s value (Book Value) that is different
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Unformatted text preview: to the company’s current market value. From what I have understood the generally accepted accounting principles provide a template from where to start telling a story. Due to the many different scenarios different companies can present, it would be very difficult to have accounting terms defined more strictly and pretend to cover every aspect. The broad nature of the GAAP curiously helps to ensure consistency in the analysis of different situations for example by excluding resources that cannot be reliably measured. It does present an opportunity for dishonest management of information but that is a risk that could present itself regardless of how strict measures are taken in any process. Special attention should be given to the foot notes on the financial statements to have a clearer picture during the analysis. References: Easton, P., Halsey, R., McAnally, M., Hartgraves, A. & Morse, W. (2010). Financial & Managerial Accounting for MBAs . Canada: Cambridge Business Publishers ....
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This note was uploaded on 04/06/2012 for the course FINANCE 410 taught by Professor N/a during the Spring '09 term at AIU Online.

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MA2-492 - to the company’s current market value From what...

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