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Financial Management Theory And Applications

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Question:

Discuss about the Financial Management Theory and Applications.
 
 

Answer:

Introduction:

Any changes in accounting activities have the ability to alter financial information for given period. In that case, company plans to change accounting principles reporting entities or estimates the company that should follow a reporting framework as it has been established by FASB (Stice & Stice, 2013). In addition, it is needed to disclose the changes in the financial statement of a company especially with changes in accounting estimates. Therefore, company cannot always determine the future prospect when certain assets are involves as well as company need to report estimates based on current values of assets or in that case depreciation methods. The company will have higher cash inflow as a result of change in principles and estimates. In order to remain ahead of competition, the company should adopt declining balance method. This is due to the reason because declining balance method is preferable as the cash flow will be higher for given years. Using this depreciation method will be suitable for long-term assets and managing it for given period of time. This method should be adopted by the company as it helps in getting better results during initial years. The income of the company determines the accounting methods when it makes use of estimations in the most appropriate way. The accounting principle of full disclosure needs the presentation as shown in the financial statement of the company. The particular schedule discloses the details of each of the contract stage of completion as well as profitability to date and current period of reporting. It is the responsibility of the management to makes the accounting estimations for a company that include financial statements. The estimation made can be either subjective or objective in nature as it results to an estimation of an amount during the date of financial statements. The judgment of the management purely based on the knowledge as well as experience on matters relating to past and current events for possible course of action. At the time of evaluating the financial statement of any company, it is important for the management to identify all the accounting estimates by adopting the methods of conducting business activities as well as new accounting pronouncements and many other external factors (Brigham and Ehrhardt 2013). It is important for the management to obtain an understanding on how management developed an estimate. The management needs to use combination of approaches that need to review as well as testing process used by the company in developing an estimate. It is essential to develop an independent expectation of the estimate for coordinating with the estimation of the management (Petty et al., 2015).

 

Errors that are counter balanced will have no direct effect on the debit as well as credit side of the financial statement. It is due to the fact that errors that are set off with each other will have affected on the financial statements directly (Brigham and Ehrhardt 2013). Furthermore, the errors need to be determined if there is any counterbalances or when the journal entry is required to correct the books of entry as a whole. Any accounting office if scrutinized properly have errors in their general ledger as it is made or prepared by using manpower or human resource. Due to this, it gives rise to human error that can be minimized by using technology or computerized information systems (Petty et al., 2015). It is thereby recommended to correct the errors when it is detected within the current period. If in case, the errors are not detected, some try to fix themselves for given period of time or take several years to correct the same. There is particularly no difference between these errors as it will counterbalance and carried out from one period to other. It is important to identify the differences and then provide justification for the same for given period of time. On identifying the differences, it is noted that these issues have no direct effect on the balance sheet or income statement accounts for given period of time frame. It is therefore needed to implement a systematic method that will help to analyze the error for determining the counterbalance entry or journal entry if in case it is needed to implement in the books of entry (Arnold 2013). The present study properly explains the concept that errors need be minimized as far as possible so that there are no misstated figures in the financial statements.

 

Reference List

Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.

Stice, E. K., & Stice, J. D. (2013). Intermediate accounting. Cengage Learning.

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