Generally Accepted Accounting Principles - Essay Example

ACCOUNTING 403 CASE ASSIGNMENT 01 Generally Accepted Accounting Principles Few years ago, many organizations used different tools and techniques to prepare and evaluate their financial statements. Therefore some accounting firms made certain standard rules and procedures to make accounting practice universal. GAAP are certain standard rules that are being used by all types of organizations to present their financial statements in standard form. These principles help the investors and creditors to evaluate the financial information of a company in easier way.

GAAP also helps to have a consistent system of financial reporting in dynamic business environment. GAAP helps the company to present the information of their financial statements in a verifiable manner to give a clear picture of the company. It also helps to compare its financial statements with other company’s financial statements within the industry, because without comparability investors can’t differentiate which company is performing well. (Meigs, 1998) Current Assets and Liabilities vs.

Non-Current Items Any asset that can be easily convertible into cash within a year is called Current Asset. These assets include Cash, Accounts Receivable, Office Stationary, Furniture and Inventories. Current Liabilities are those liabilities which company owes and must be paid off within a year is called Current Liabilities. This includes liabilities like Accounts Payable and short term debts. Non Current Assets are all those assets other than Current Assets. They cannot be easily convertible into cash within a year.

This includes Machine, Land, Goodwill and etc. Non Current Liabilities are those liabilities which company owes and are required to pay after one year, the time period of this liability is more than one year. This includes Bonds, Treasury Bills and etc. The concept of assets and liabilities is important for a person to understand the financial statements of a company by seeing the company’s Assets and Liabilities and then calculating Equity of a company to check whether the company’s financial position is strong or not.

(Horngren, Sundem & Elliott, 1996) Which is More Useful in Your Opinion for Each of the Two Companies: Net Income or Cash from Operating Activities? Net Income is important in business because in Income Statement the Net income shows that how much profit the company has earned which is useful for the company as well as for the investors also. Net Income gives a clear picture of the company that where the company is standing in the market and what are the capabilities of company. The investors as well as the creditors who invest in the company are more interested in the Net Income.

Toyota is one of the leading company is production of vehicles especially in cars. From their financial report I found that company has earned a benchmark of revenues (249.3 bn Yen) in Asia as compared to Japan (178.6 bn Yen) and Europe (99.4 bn Yen) which is quite interesting. The company should focus on Asia because they are generating a certain % of their revenues from there. Western Digital is also a very famous company which is known for their quality Hard Drives throughout the world. They should also diversify their product line into other electronic goods like USB technology, Bluetooth Devices and DVD Drives also because somehow they can increase their profits and can generate higher revenues.

Works Cited 1. Charles T. Horngren, Gary L. Sundem and John A. Elliott. Introduction to Financial Accounting. Prentice-Hall International, 1996. 2. Robert F. Meigs. Financial Accounting. Irwin/McGraw-Hill, 1998. 3. Donald J Guerrieri, F. Barry Haber, William B. Hoyt and Robert E. Accounting: Basic Principles and Applications. McGraw-Hill, 1992.