ACC 308

Posted: August 26th, 2021

ACC 308

Name

Institutional Affiliation

ACC 308

Part 1- Notes on Financial Reports

The financial statement notes are about the extra information provided on the financial statement to help users understand the organization’s performance and the methods used in presenting the financial reports. The notes are intended to explain disclosures and any changes or inconveniences related to the financial reports such as balance sheets, income statements, and cash flow statements. (Griffin & Mahajan, 2019). Subsequently, they supplement financial reports through enhancing clarification for investors, the public, and other users. Therefore, the following is an analysis of the financial notes of Peyton Approved on depreciation, supplies, and inventory management, and the company’s management analysis.

Depreciation Management

The depreciation management policy for the company is based on annual depreciation, whereby revenues are expensed based on the matching principle. More so, the straight-line method is applied under which the scrap value is adjusted according to the useful life of the asset. Then, this is subtracted from the initial cost of the asset and divided by the remaining amount with the number of years.

Inventory Management

It is the policy of Peyton Approved to report its stock at lower of cost or market value, determines the inventory per GAAP, and use first-in, first-out (FIFO) inventory method.

Supplies Management

The company supplies are presented in their respective carrying values in the company financial statements once doubting reserve costs are adjusted. More so, it negotiates and purchases for the essential items selectively based on the best price offers product quality, manageable repayment period, and available discounts. The estimated period for settling debts to suppliers is thirty days.

Part 2- Management Analysis Brief

The management analysis provides the general outlook of the Peyton Approved Pro-forma statements according to the 2018 financial information. Financial information provides accounting activities, variations, and financial analysis. From the Pro-forma statements, a robust financial position is evident as the company has been increasing its revenue and assets from its forecast from 2015-2018(Robinson, 2020). Equally, the current financial year’s estimates have increased compared to previous accounting periods. From the Pro-forma income statement for the year 2018, it can be observed that the company manages the sales and expenses at 80%. Additionally, the liabilities and assets are maintained at 80% from the previous financial year. Therefore, the control of cash flows, costs, and revenues is done using Pro-forma accounting statements for forecasting strategize for the company’s desired direction. More so, the statements help the company manage its long-term objectives and strategizing for risk management, forecasting, contingency planning, and identifying financial problems. Thus, the Pro-forma statements provide a precise and stable business environment and make future budgeting easier.

Besides, the company uses various methods in calculating the valuation of inventory. Notably, it employs First-In-First-Out (FIFO) and the Last-In-Last-Out (LIFO) methods, respectively, according to GAAP guidelines. Peyton Approved adopts the FIFO method in stock valuation and costing, where the stock that was purchased first is the first to be sold (Mazumder & Purohit, 2018). Additionally, contingent liabilities have a direct impact on the financial statements due to their uncertainty and timing. Hence, before revealing contingent liability on the accounting report, there should be a fifty percent (50%) possibility of being realized and estimating its value (Mazumder & Purohit, 2018).  Equally, contingent liabilities that are disclosed on the company’s financial statements should be reasonable, probable, and remote following the GAAP principles. According to the company, contingent liabilities are recognized in its accounting statements as expenses in the income statement. However, they are reported as liabilities on the balance sheet. Regarding revenues, it is recognized only when it is earned.Finally, interpretation of financial statements has several issues, such as inflationary effects, use of actual costs when preparing, and intangible assets are not disclosed in the reports (Tyan, 2017). Thus, non-financial issues are not reported in the company, and management can manipulate the statements reports to depict more robust financial performance of the company, which may not be the actual case.

References

Griffin, P. A., & Mahajan, S. (2019). Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, 141-148.

Mazumder, B., & Purohit, K. (2018). Revenue recognition for long-term contracts under IFRS 15–an analysis with reference to the real estate companies in Bangladesh. Indian Journal of Accounting, 50(2), 22-30.

Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.

Tyan, D. B. (2017). Application, technical issues, and interpretation of C1q for graftoutcome. Current Opinion in Organ Transplantation, 22(5), 505.