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Financial Accounting: Essay

1109 words - 5 pages

Introduction
Financial accounting that is about reporting and summarizing the transactions of business and provide an accurate financial reports or financial statements such comprehensive income and finacial position (Averkamp, 2014). However, if investing in a business and want to acquire more profit, the financial statemnet of company is must be analysed before taking a decision. This essay will explains that financial statements between two companies about four years comprehensive income statements and four years statements of financial position. Then, it will be give a answer which one is best to invest.

Definition
Comprehensive income is the change in company's equity (net assets) in ...view middle of the document...

Similarities

On the other hand, there are some similar statements between comprehensive income and financial position. For example, they are need prapare a comprehensive income for the end of years. In the process of financial record, revenue, cost of sales and gross profit are must be caculate both of them. It is illustrates the income situation of company. The usual expenses are calculated such as salaries, rent and rates, insurance. Whole of table of comprehensive income and financial position have same step in calculate the profit for the period. Thus, income statement is part of statement of financial position.

Difference

Generally, analyse the differences of the statement of comprehensive income and the statement of financial position is necessary. The purpose of the statement of comprehensive income is illustrate that entity's financial performance (profitability) in the accounting period (usually for one year), no matter when cash is received or paid. It is depend on accrual accounting and the formula is profit or loss for the period equal to income minus expenses. Hence, when we wan to invest one company this calculation method is clear shows the income situation of the company and unrealized profit or loss. But the statement of financial position has different purpose that is sum up the total assets, equity and liabilities on the last day during the period of times, and the statement of comprehensive income was prepared. The equation is Equity plus Liabilities equal Assets. This method can help us kown the total assets and which part of liability and equity will pay in the future or now. Also, i scan be shows that company’s profit and loss. In addition,

Arguement
Income statement is useful ways of measuring performance of a business during a period of times. For example, it can be compare with other organizations in the profitability of the business entity or similar industry department. through change in sales revenue, gross profit and operating profit margin and net profit margin in order to assess performance of a business. Meanwhile, some of interest, ratios and working capital is analysed by incom statement. Nevertheless, income statement does not report transactions with the owners of an entity (Accounting Simplified, 2013). Therefore, there is no present the expense in the income statement for dividends paid to ordinary shareholders.

While the statement of financial position is useful ways of assess the financial health of a company. Statement of financial position is...

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