The paper "Dale’ s Solar Clean Income Statement " is a great example of a finance and accounting assignment. The company’ s income statement indicates that the level of profits has increased over the three-months in operations. The increase is highly attributed to increased revenues from customer service repairs as well as manageable expenses. Taking a closer look at the income statement, it can be noted that the level of revenues is highly positioned in comparison to the degree of expenses within the three-month period. The only substantial expense rests with the depreciation expense.
Such expenses as wages and salaries have remained the same within the three-month period despite the fact that the personnel have made efforts to increase customer services revenues. Subsequently, the balance sheet indicates that the level of asset-base has increased within the period hence an indication that it can meet its short term obligations with the existing resources. These reliable resources are also a contributory factor of the increased revenues and this, profits for that matter within the same operational period. Looking at the balance sheet, it can be noted that amounts attributed to current assets are far much enough to cover the current liabilities in an enormous manner and ratio as shown below Current assets/current liabilities: (104,074+86,953+12,850)/ 6,187 = 32.85:1 The current ratio above indicates that the Company is able to meet its short term obligations given that for every current liability incurred, it has at least 32 current assets to cover for it. Question 6 Accrual basis of accounting is much more useful than a cash basis because it generates more accurate and a highly faithful representation of the financial statements, which means that these representations depict actual circumstances as they occur (Kober, Lee, & Ng, 2010).
Accrual accounting allows for necessary adjustments of transactions since it emphasizes the aspect of actual timing. It further allows for the assessment of performance measurement thus determining the profitability of a venture due to the activities being undertaken within any given moment in time (Diamond, 2002). It is important to note that under the accrual accounting basis, revenues are only reported whenever they are deemed to be earned and not when the cash attributed to it, is received (Diamond, 2002).
On the other hand, expenses only in the event that they have been incurred and not necessary when they were paid. Adherence to accrual accounting ensures that a firm’ s profitability, asset-base and liabilities as well as other forms of financial information is indeed aligned with the existing economic reality (Diamond, 2002).
Diamond, J. 2002 Performance budgeting is accrual required. IMF Working Paper, vol.1, pp.1-31
Kober, R, Lee, J & Ng, J. 2010 Mind your accruals: Perceived usefulness of financial information in the Australian public sector under different accounting systems, Financial Accountability & Management, vol.26, no.3, pp.267-298