for reporting changes is the prospective method this method does not require an

For reporting changes is the prospective method this

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for reporting changes is the prospective method, this method “does not require an adjustment to previously issued financial statements. Instead, the accounting change is accounted for in the current and future periods.” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017). GAAP has laid out what method for reporting changes should be used for each type of accounting change. “A change in an accounting principle is accounted for by the retrospective application of the new accounting principle… A change in an accounting estimate is accounted for prospectively… A change in a reporting entity is accounted for by a retrospective adjustment so that all the financial statements presented are for the same entity” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017).
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When talking about the impact of a new credit policy for Peyton Approved one must look a couple of things. The first thing to look at is the accounts receivable turnover, Peyton Approved has $7,092,495.88 in Accounts receivable. This is a large amount the company must collect on and if Peyton Approved were to collect on these accounts then this would increase the amount of available cash that they have which would increase the Quick Ratio of the company which does look better to investors because that means the company can effectively collect on their accounts receivable. That is another thing Peyton Approved must look at, days taken to collect on their accounts receivable. The company needs to make sure that the days taken to collect is within their current credit policy because if the amount of days that it is taken is getting longer, then the current credit policy may need to be strengthened and/or enforced better. The large amount that Peyton Approved has in their account receivables shows that they are either loaning very large amounts or they are having trouble collecting on the accounts. If the company is having trouble collecting, then the company will need to strengthen their current credit policy. The company should require that a credit report must be ran before loaning money out, and Peyton Approved should only give a loan to good recipients that have a good credit score and will pay the amount back in full and in a timely manner. These actions taken to change the current credit policy will help reduce the amount the company is recording in their accounts receivable and increase their Quick Ratio which will appeal to more investors.
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“Financial notes and disclosures—is the language we use to communicate information about the financial condition of a company” There are a few accounting standards that are relevant for informing the company (Peyton Approved) of the financial reporting strategies. Some of those notes to the financial statements are cash and cash equivalents, use of estimates, income taxes. Cash and cash equivalents say, for purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The note called Use of estimates says, the preparation of financial statements
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