Financial Management Essay Example | Topics and Well Written Essays - 1500 words - 2

Financial Management - Essay Example (Kieso, 2009) Recording includes journalizing the transactions by recording them into a daily book known as General Journal; these transactions are then posted in the ledger to separate the transaction with respect to their nature. Moreover, these are subsequently used to make financial statements at the end of the accounting cycle to gauge the performance of the firm. (Kieso, 2009) However, this all process is governed under some accounting principles that are taken into account when the transaction are recorded, posted or reused in the making of the financial statements which include balance sheet, statement of income and expenditure, statement of cash flows and statement of changes in equity. (Kieso, 2009) ACCOUNTING CONCEPTS The accounting concepts include the assumptions on which the accounting systems are based. They provide the key steps and guides towards the preparation of financial statements. ... Below, we will discuss in detail about the concepts mentioned above. Business Entity: A concept that treats business as a separate entity from that of its owners. Thus if the owner of the firm purchases a car for his personal use then that transaction would not be treated as a part of the business; however if the car would have been purchased for the business usage, then the transaction would have been recorded under the account of the business. (Kieso, 2009) Money Measurement: Accounting allows one to record only those transactions which are monetary in nature. (Kieso, 2009) For example, Apple by virtue of accounting laws can never bring the worth of Steve Jobs on the financial statements, nor it was able to reflect the expected loss in Apple’s worth after Mr. Jobs died, thus a company cannot bring the death of an employee on the financial statements since the event cannot be classified in terms of money. However, if a transaction is monetary in nature then only it can be rec orded; for instance, ABC Company purchased office equipment worth $1 million, now, since the transaction is monetary in nature, the transaction can be recorded in the books of the accounts. Cost Concept: This concept requires one to record an asset at a cost at which it is acquired. For instance, if Wal-Mart was able to acquire a new land at $1 million whose market price was $2 million, then the transaction will record land at $1 million, even though the market price of land is $2 million. There are two advantages of this assumption; first being the fact that it ensures filtering of more than one possible market price, and second, being the fact that the cost can be documented and thus can be used