Financial Accounting Concepts Essay Example | Topics and Well Written Essays - 500 words - 5

Financial Accounting Concepts - Essay mannequinThe higher the real ratio the greater is the companys ability to pay its bills. It is in addition a tool which also helps make rational decisions in maintaining with a companys objectives. This is the causal agent why the bank insisted that they maintain a current ratio of 1.5. This would also enable the bank to keep a track on the companys functioning.The accounting principle relevant here is conservatism. worldly-minded accounting can only cause temporary increase in the companys earnings. The nucleus is temporary and the actual may differ and hence not considered a good indicator of posterior earnings. Conservative accounting would raise questions about not only the balance sheet entirely also about the income statement. Accounting conservatism only helps to reduce disclosure.According to me it would he unethical to record the tax income of the new sales contract in celestial latitude. It is always advisable to be honest wit h the bank because the sexual congress with a bank is a long-term one. If the bank arrange out on its own it would ponder badly on the company and then the bank would be very cautious in on the whole future transactions also. Manipulation may not be intended by the company but banks would be cautious in all future reporting by the company incase they found out.If the company records this revenue in December the current ration would increase. They could complete the contract in December itself and raise the bill. Once the bill is raised, whether they receive cash for it or it remains as current receivables, the current ratio goes up. In this case there is nothing wrong. But as can be seen it is already the 15th December. Would it be possible to complete the contract within this period? Besides, credit has to be give to the party so cash payments cannot be expected.But in the event that the contract is executed in January and considered in December just for the sake of reporting, it would be a false