Accounting Question

MW

PART 1 COMPLETE DISCUSSION

Just like with most tools, ratio analysis has benefits and limitations. Please discuss at least one benefit and one limitation of ratio analysis.

PART 2 REPLY TO DISCUSSION

Greetings Prof. Frazier and Classmates,

Based on our readings this week, ratio analysis allows us to compare the financial health of different companies by looking at key financial metrics. For instance, the current ratio compares a company’s current assets (like cash and inventory) to its current liabilities (such as short-term debt and upcoming bills). A high current ratio indicates that a company has enough current assets to cover its current liabilities, which suggests financial stability. By analyzing ratios like this, investors and managers can make informed decisions about which companies are in a strong financial position and which ones might be facing financial challenges.

While ratio analysis provides valuable insights, it has limitations too. One major limitation is the lack of context. Ratios only show us part of the picture because they don’t consider external factors that can influence a company’s performance. For example, economic conditions, industry trends, and changes in consumer behavior can all impact a company’s financial health. A company might have strong ratios, but if it operates in a declining industry or faces economic challenges, those ratios may not accurately reflect its future prospects. Therefore, relying solely on ratio analysis without considering these external factors can lead to incomplete or misleading conclusions about a company’s financial health.

Reference:

Cornett, M. M., Adair, Jr., T. A., & Nofsinger, J. (2022). Finance (5th ed.). McGraw-Hill Education.

PART 3 REPLY TO DISCUSSION

Greetings Professor and class,

The Role of the Financial Manager and Financial Analysis

Just like with most tools, ratio analysis has benefits and limitations. Please discuss at least one benefit and one limitation of ratio analysis.

Ratio analysis is the process of calculating and analyzing financial ratios to assess a firm’s performance and to identify actions needed to improve firm performance. When used correctly, ratio analysis can help identify problems and positive things in a firm. Ratios are like whistleblowers, they draw attention to issues that need attention.

Asset Management Ratio measure how efficiently a firm uses its assets (inventory, accounts receivable, and fixed assets), as well as how efficiently the firm manages its accounts payable. The specific ratios allow managers and investors to evaluate whether a firm is holding a reasonable amount of each type of asset and whether management uses each type of asset to effectively generate sales. While this may be a benefit, there are limitations as well. Ratio analysis does not take into account external factors such as a worldwide recession. Ratio analysis does not measure the human element of a firm. Ratio analysis can only be used for comparison with other firms of the same size and type.

For Example, Similarly, a firm’s cross-sectional competitors may often be located around the world. Financial statements for firms based outside the United States do not necessarily conform to GAAP. Even beyond inventory pricing and depreciation methods, different accounting standards and procedures make it hard to compare financial statements and ratios of firms based in different countries.

PART 4 COMPLETE DISCUSSION

What is the Time Value of Money Principle? Please provide a real-world application which requires use of the Time Value of Money Principle.

PART 5 REPLY TO DISCUSSION

Greetings Prof. Frazier and Classmates,

Based on our readings this week, the Time Value of Money (TVM) principle is a fundamental concept in finance. It states that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim.

I would like to break it down in simplest terms with the following examples:

Why Does It Matter?

Imagine you have $100. If you invest it today, it can grow over time through interest or other returns.

However, if you delay investing that $100, you miss out on potential growth. A delayed investment is a lost opportunity.

Real-World Example:

Why? Because the risk that the bank won’t repay you is low, and the interest earned compensates for the delay.

Now, if you lend the same $100 to a stranger, you might require a $20 return on investment instead.  The risk is higher with a stranger, so you demand a higher return.

What is the Time Value of Money Principle? To answer this question I’ll be referring to this week’s Chapter reading stating, the term “time value and money” really refer to the difference in buying power for a dollar over time. A real- world application which requires use of the Time Value of Money Principle would be for example if I decided to save up money let’s just say $10,800 cash to cover 1 year of grocery cost next year, to counteract the inflation that’s going on today with groceries being so high. Let’s say I calculate how much my groceries are now a month which is $900 hypothetically thinking. If I decide to put this $10,800 cash in a shoe box to use for next year to purchase for a year the $900 per month groceries, it probably won’t be enough. Inflation might cause the groceries cost per month $945 a month next year. So I’ll be a little short. The dollar would have lost value over the one year. Maybe not by much but it would still be slightly higher for groceries per month by next year. If I were to put the $10,800 in a bank that would like to use my money and pay me back later, with interest. This interest is my compensation to offset the money’s decline in value. Which would more than likely give me more than what I need for a year’s cost for groceries next year. Each dollar will be worth less in the future, but you’ll get more dollars with interest. I’ll be able to buy the same types of groceries next year using this principle if I decide to stash money aside for it but with interest.

PART 7

ACCT500: Course Project
Requirement
1
2
3
There are also hints contained within certain cells on some of the Worksheet tabs.
You can hover over the red pointer at the top right-hand corner of the cell to read the
Hints are provided for the following balances:
1) The debits for the journal entries are on the Journal Entries tab.
2) The credits for the journal entries are on the Journal Entries tab.
3) The cash balance is on the General Ledger tab.
4) The debits for the trial balance are on the Trial Balance tab.
5) The credits for the trial balance are on the Trial Balance tab.
ACCT500: Course Project
Requirement Description
Prepare the Journal Entries in the General Journal
Post Journal Entries to the General Ledger
Prepare a Trial Balance
so hints contained within certain cells on some of the Worksheet tabs.
er over the red pointer at the top right-hand corner of the cell to read the hint.
ded for the following balances:
or the journal entries are on the Journal Entries tab.
or the journal entries are on the Journal Entries tab.
lance is on the General Ledger tab.
or the trial balance are on the Trial Balance tab.
or the trial balance are on the Trial Balance tab.
Worksheet Name
1 – Journal Entries
2 – General Ledger
3 – Trial Balance
rksheet tabs.
cell to read the hint.
During its first month of operation, the Plumbing Repair Company, which, specializes in
plumbing repair services, completed the following transactions.
September Transactions
Date
September 1
Transaction Description
Started a plumbing repair business by making a $100,000
deposit in a company bank account, in exchange for 20,000
shares of $5 par value common stock.
September 1
September 2
Purchased insurance for the year and paid $3,000 cash.
Paid monthly rent with $3,500 cash on a warehouse to store the
plumbing equipment.
September 5
Purchased plumbing equipment for $25,000, making a $5,000
down payment and placing $20,000 on account.
September 6
September 7
September 10
September 12
Purchased supplies for $2,000 on account.
Paid $750 cash for advertising in local newspapers.
Received $15,000 in cash for plumbing services provided.
Paid $5,000 for plumbing equipment previously purchased on
account on September 5th.
September 15
September 23
September 25
Provided plumbing services on account for $2,500.
Received $22,000 in cash for plumbing services provided.
Received $1,500 cash for plumbing services performed on
account on September 15th.
September 28
September 30
September 30
September 30
Paid $500 cash for a utility bill.
Paid cash dividends of $1,000.
One month’s insurance expired.
The inventory of supplies showed a balance of $1,200 on hand
at the end of the month.
Use the following account descriptions for journal entries.
Chart of Accounts
Account Type
Assets
Account
Number
Account Title
Normal Balance
111
115
117
119
144
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Debit
Debit
Debit
Debit
Debit
212
Accounts Payable
Credit
311
313
Common Stock
Dividends
Credit
Debit
411
Service Revenue
Credit
510
511
512
514
517
Insurance Expense
Rent Expense
Advertising Expense
Supplies Expense
Utility Expense
Debit
Debit
Debit
Debit
Debit
Liabilities
Stockholders Equity
Revenue
Expenses
Journal Entries
REQUIREMENT #1: Prepare journal entries to record the September transactions in the General Journal
below. Remember that Debits must equal Credits—All of your Journal Entries should balance.
General Journal
Date
Account
Number from
Chart of
Accounts tab
Account Title from Chart of Accounts tab
Debit
Journal Entries
Journal Entries
e General Journal
balance.
Credit
Journal Entries
REQUIREMENT #2: Post the September journal entries to the following T-Accounts and compute e
balances.
Date
Cash (111)
Accounts Receivable (115)
Supplies (117)
Prepaid Insurance (119)
Equipment (144)
Date
Accounts Payable (212)
Common Stock (311)
Dividends (313)
ollowing T-Accounts and compute ending
Service Revenue (411)
Insurance Expense (510)
Rent Expense (511)
Advertising Expense (512)
Supplies Expense (514)
Utility Expense (517)
Journal Entries
REQUIREMENT #3: Prepare a trial balance for September in the space below.
Account
Number
The Plumbing Repair Company
Trial Balance
September 30
Account
Title
Balance
Debit
Credit
Journal Entries
NAME
Course Project Grading Rubric
Excellent
Good
Step 1
—Journal Entries
Journal entries use
Journal entries mostly use
accurate accounts and accurate accounts and
amounts; and debits and amounts; and debits and
credits are used correctly. credits are used correctly.
Step 1 Grading Scale
Step 2 Ledger Posting
and Balancing
45-40
Posting is done in the
correct accounts and at
the correct side (Dr./Cr.)
and balances are
correct.
39-35
Posting is done mostly in
the correct accounts and
mostly at the correct
side(Dr./Cr.) and balances
are mostly correct.
Step 2 Grading Scale
Step 3 – Unadjusted Trial
Balance
45-40
Accounts are listed
correctly and in the
proper order leading to
an accurate trial
balance.
39-35
Most accounts are listed
correctly leading to a
mostly correct trial
balance.
Step 3 Grading Scale
30-27
26-24
Points
Available
Fair
Poor
Unacceptable
Journal entries have some
errors in use of accounts
and amounts; and debits
and credits are only
somewhat used correctly.
Journal entries have some
errors in use of accounts
and amounts; and debits
and credits are not used
correctly.
The submission does
not meet this
requirement.
34-30
Posting has errors with
incorrect accounts and
incorrect debits/credits
and incorrect balances.
29-25
Listing of accounts is mostly
incorrect with most
incorrect accounts and
incorrect Dr./Cr. Most
ledger balances are
incorrect.
24-0
The submission does
not meet this
requirement, or
posting is not done at
all.
45
34-30
Listing of accounts has
several errors leading to
incorrect trial balance.
29-25
Listing of accounts is done
poorly or not at all, leading
to inaccurate or no trial
balance.
24-0
The submission does
not meet this
requirement.
45
20-18
17-0
30
120
23-21
Your Points