Business accounting is an important practice that monitors and control financial transaction in the business. Accounting involves recording, measuring, analyzing, and reporting transactions that the business undertakes in specific period of time within an accounting year (Weil, 2017). This means that accounting in business is regular practice aimed at recording every financial transaction that the business is involved in and reporting them to stakeholders for decision making. Accounting concepts are important skills for my future career in business. Accounting knowledge and skill enable one monitor, control, and evaluate business financial performance to make informed decisions.
The following reflection paper will outline my understanding of accounting concepts has learnt between 2 to 6. The paper also contains my evaluation and strategies to improve my understanding in these concepts.
Double entry accounting: This concept involves entering transaction in books of account in two accounts because each transaction has two effects to business finance. Buying or selling either reduces or increases finances in the business. Therefore the exchange in business requires a double entry of transaction in accounting. For instance, buying a company car reduces the cash in the business and increases the assets of the business with the same value.
Accounting equation: This equation forms the balancing effect in the books of accounts. It indicates that the business assets should be equal to liabilities and owners equity. This concept is used for auto checking the accuracy of the balance sheet.
Assets= Liabilities+ Owner’s Equity
Accounting Cycle: This involves a process of identifying transaction to preparing the financial statements. This process involves identifying of transactions, journal entry, ledger entry, preparation of trail balance and finally preparation of financial statements.
Journal: This concept involves recording financial transactions in chronological order of the date they happen. It is the first recording of the financial transaction in the accounting cycle.
Ledger: This refers to entry of transaction to individual account in the accounting cycle. There is subsidiary ledger and general ledger. Subsidiary ledger gives detailed report of an account and is used to make account entry in the general ledger.
Adjusted trail balance: This contains listing of all accounts whose values are transferred in the financial statement. Adjusted trail balance is prepared after adjusting journal and ledger accounts. It is the last step in the cycle before starting preparing financial statements.
Financial statements: These are the final reports that are produced in the process of accounting. They provide financial information about the business. They indicate financial performance, liquidity, and ability.
According to the completed task, I feel I have gained a lot of knowledge in the field of business accounting. I am able to define several concepts and understand their use in accounting. I have been able to understand the accounting cycle which forms the backbone of the accounting concept and practice. I have been able to appreciate the accounting concept in business and it role to stakeholders. This involves identifying, recording, journalizing, posting to ledger and entry to trial balance in the process of accurately reporting the financial performance of the business to different stakeholders.
I plan to use the feedback from the task completed to improve on areas that I don’t understand. I will use the feedback to assess my understanding in the accounting concept. This will enable progressive learning of the accounting concept.
From the past reflection in the earlier topics, I have learned the important skills that will enable my learning in the later topics. First, progressive learning has increased my productivity. It enhances my hard work on the topic. I have been able to carefully understand areas that require extra time to understand and what is required in every topic. This has increased my productivity in terms of getting to details and analyzing concepts. Secondly, I have been able to learn with differentiation. Progressive learning has equipped me on skills that enable understanding concepts by differentiating. I am able to clearly understand definitions and give my own understanding with no or minimum confusion. I have also been able to incorporate technical language in the past topics. I have been able to learn how to use technical terms in the topics learnt. This has helped improve my presentation of the knowledge and skills learnt (Jackling, 2005).
This progressive learning experience will enable my understanding, self evaluation, and productivity in my later topics. I will use the learning skills got to improve my learning thereby increasing my productivity and profitability in learning the concepts in business accounting.
Account receivables are amount that is recorded in the accounting process due to goods sold on credit. Receivables are amounts expected to be paid by debtor in the future date. Receivables are recognized when good bought from the business or services exchanged. Receivables are recorded as assets to the business. When good are bought in credit, the account receivable increases by the value of goods sold. When credit is settled, account receivable is reduced by the amount of credit settled. Account receivable increase is debited in the journal and ledger account while a decrease in account receivable is credited in the books of account. Lastly account receivables are recorded as current assets in the balance sheet.
Doubtful debts are account receivable that is estimated to be bad debts. Doubtful debts are allowed in the accounting process and are recognized as expenses. The doubtful debts have high probability of being tot settled by the debtors. This means that the business is likely to suffer losses as a result of non paid account receivable. The business does not immediately forget about bad debt but instead open an account that recognizes the doubtful debts and incase the debts are paid, the business can record receivables normally. When business sees there is no possibility of debtors settling debt, it opens a bad debt account that whose increase is credited and decrease is debited. When a debt is settled, the bad debt account decreases by the amount settled. This reduces the account receivable and increases cash received in the business.
Income in a company is an inflow to the company. Income is inflow has a result of sale of goods or services to customers where the customers pay money in exchange. Income is refers to revenue earned in an accounting period of time. Income increases the economic benefits during the accounting period. Income increases the assets of the company by the amount that is received. Income is a company is recognized when a business transaction to exchange goods or services of the company.
BHP Billiton recognizes revenue from sale of its products that include petroleum, copper, iron, core, natural gas, nickel, and uranium. The company sells its products in the world market. The company recognizes income when a transaction to sell its product done. This indicates that the company uses accrual basis to recognize income. The Company recognition of revenue is based on GAAP financial standard that require recording on accrued basis. This requires the Company to account and record revenues once the transaction for sell to a consumer is made. The Company records revenue either by card or promise to pay in a later date. This means that the company accepts customers to purchase company’s products on credit. When products are bought on credit in the company, the revenue is recognized and recorded in the account receivable. The revenue is recognized on the date that the transaction is made or the financial year that the transaction occurred. When the payment is made, the account receivable is decreased by the amount paid. For instance, the BHP Billiton recorded account receivable $ 3155000000 for 2016 financial year and $ 431000000 trade receivables for 2015 financial year. The Company total Revenue for the year is recorded as $ 30912000000 for 2016 financial year which is a combination of both cash sale and credit sale accounting year being reported. Therefore, BHP Billiton uses GAAP financial standards when reporting revenue in the company for a specific financial year.
GAAP is crucial in financial reporting and business practices in general. GAAP sets standards that regulate financial reporting that outline standards in financial recording and reporting (Aasb.gov.au, 2017). This enables companies to have set standards for reporting financial information. Financial information of a company is an important aspect and has to be handled with great responsibility. This stresses the importance of using GAAP standards for regulating financial reporting for any business. First, GAAP enables consistency in financial reporting. GAAP helps companies to consistently report their financial performance by setting standards on the accounting practices. Accounting in the company is able to be recorded, analyzed and reported on the same basis that enables consistency in reporting. Secondly, GAAP enable true presentation of the financial performance of the company. GAAP standards outline financial measures that are to be used as indicators of financial performance in a company. This makes it impossible for management to mask poor performance in their companies. Managers use non GAAP standards to overestimate incomes and underestimate expenses to be recognized for good financial performance. Third, GAAP is regulated by AASP. Non GAAP standards are not regulated by any organization and therefore prone to misleading financial reports. Lastly, GAAP standards provides basis for comparison between companies in the same industry or in another countries. GAAP outlines standards that are generally accepted and thereby their financial reports can be used to compare companies (Coulton, 2017). This is important to investors who rely on financial reports to make decision to invest. Therefore, it can be summarized that GAAP are crucial standards that present true and fair state of company’s financial position.
BHP Billiton Group has used GAAP standards in reporting it financial reports for the 2016 financial years. The company has used GAAP standards to report it consolidated income statement, consolidated cash flow, and consolidated balance sheet. The company has outlined comparative financial information for the past four years. The restating is indicated in the IFRS5/AASB 5 (Iasplus.com, 2017). The financial report restating is outlined in the standards to ensure comparative financial information is reported. Therefore stakeholders using these financial reports can easily understand and see financial progress of the business. For example, the company recognized Revenues for 2012 as US$56642M, 2013 as US$53860M, 2014 as US$56762M, 2015 as US$44636M and US$30912M (BHP Billiton, 2017). These restating of financial performance show that the company has reduced its revenues constantly for the past five years. This indicates that BHP Billiton Group has decreased it sales for the past five years. This GAAP financial regulation implemented helps financial information users to make informed decisions.
BHP Billiton Company is engaged in non-GAAP reporting when recording some financial measurements in the financial reports. The company uses EBITDA in measuring operating results. EBITDA measures earning before net finance cost, depreciation, amortization& impairment, taxation, discontinued operations, and exceptional items during an accounting year. The EBITDA of BHP Billiton includes part of profit or loss that the company incurs in investments accounted for. This is done by using equity method that included amortization, depreciation, net finance, and taxation expense. The underlying EBITDA is indicated in the BHP Billiton balance sheet reports the underlying operating financial report. The EBITDA reported for 2012 are US$315534M while for 2016 is US$12340M. This indicates that the EBITDA decreased for the past five accounting years. The BHP Billiton management argues that the non GAAP measurement used is for the purposes of indicating performance of the company financially. These variables are used to show underlying earnings per share and are used in the determining underlying performance in the company.
The non GAAP measures used by BHP Billiton to determine basic per shares have several impacts to investors’ perception. The underlying EBITDA used by the company overestimates the returns in a financial year. The variable also underestimates the expenses that the company incurs in the accounting year. These effects impact the investors’ perception by creating an impression on the financial performance of the company (ó Hógartaigh, 2008). This perception is not the real financial performance of the company. Therefore, investors getting involved will not be able to compare or establish the validity of the real financial performance of the company.
References
Aasb.gov.au. (2017). Accounting standards. [online] Available at: https://www.aasb.gov.au/Pronouncements/Current-standards.aspx [Accessed 19 Apr. 2017].
Iasplus.com. (2017). Australia. [online] Available at: https://www.iasplus.com/en/jurisdictions/oceania/australia [Accessed 19 Apr. 2017].
BHP Billiton. (2017). BHP Billiton | Reports and presentations. [online] Available at: https://www.bhpbilliton.com/media-and-insights/reports-and-presentations?bhpcontentplaceholder_0contentlisting_0subl_bhpplaceholderrow0_0_r=category%3DAnnual%2BReports [Accessed 19 Apr. 2017].
Coulton, J. (2017). Companies should stick to the standards to avoid misleading investors. [online] UNSW Newsroom. Available at: https://newsroom.unsw.edu.au/news/business-law/companies-should-stick-standards-avoid-misleading-investors [Accessed 19 Apr. 2017].
Aasb.gov.au. (2017). For students. [online] Available at: https://www.aasb.gov.au/About-the-AASB/For-students.aspx [Accessed 19 Apr. 2017].
Jackling, B. (2005). Perceptions of the learning context and learning approaches: Implications for quality learning outcomes in accounting. Accounting Education, 14(3), pp.271-291.
ó Hógartaigh, M. (2008). Irish accounting, business and financial history: a bibliographical essay. Accounting, Business & Financial History, 18(1), pp.7-19.
Weil, R. (2017). Financial accounting. 1st ed. [Place of publication not identified]: Cengage Learning.
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